'Booked flat, paid ₹50 lakh, still taxed ₹99 lakh': TaxBuddy founder explains Section 54 snag

Booked a house. Parked the capital gains. Still faced a ₹99 lakh tax hit. Why? A builder’s delay. A sharp LinkedIn post by Sujit Bangar, founder of TaxBuddy.com, breaks down how one taxpayer got caught in the Section 54 trap—and how she clawed back partial relief.

According to Bangar’s post, the taxpayer sold a flat on July 31, 2012, earning long-term capital gains (LTCG) of ₹99.35 lakh. She deposited ₹1 crore into the Capital Gains Account Scheme (CGAS) on July 29, 2013—just in time to claim protection under Section 54 of the Income Tax Act.

In September 2014, she booked an under-construction flat and paid ₹50.86 lakh by November. But by July 30, 2015—the end of the three-year construction window—her new home wasn’t ready. The Assessing Officer taxed the entire ₹99.35 lakh.

That’s where the paper trail saved her. She showed that ₹49.86 lakh had been withdrawn from the CGAS and actually invested in the property. With receipts to prove it, she received relief up to ₹50.86 lakh. The rest—₹48.49 lakh—was still taxable.

Bangar explains that Section 54 provides LTCG exemption if gains from a residential sale are reinvested in another house—bought within two years or constructed within three. If not, any unused amount becomes taxable. CGAS allows gains to be parked temporarily, but the three-year rule remains firm.

This case, as Bangar notes, offers clear takeaways:

• Booking a flat isn’t enough. The property must be completed on time.
• Align cash flows and builder timelines to ensure full exemption.
• Keep airtight documentation—bank statements, receipts, and correspondence.

Section 54F differs: it applies when any long-term asset is sold and the gains are used to buy a residential property. But it comes with ownership conditions.