Residential property transfer - land - ltcg

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Kapil Khanna (Querist)
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30 May 2013 My wife recently sold residential plot of land in a society. No house was constructed. It was a long term property transfer (held for > 3 yrs).

We would like to benefit from LTCG tax provisions by purchasing another property (within 2 yrs).

1. Can we purchase land/plot OR it must be a constructed house only?
2. Which sections/sub-sections of sec. 54 should I read for details.

Thanks,
Kapil

Pankaj Gupta

Pankaj Gupta (Expert)
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30 May 2013 As sec 54 is applicable on sale of residential house property, therefore the same is not applicable in your case.
You can get benefit of the following sections-----

1. Sec 54EC --
If the long term capital gain is invested in the purchase of certain specified bonds within a period of 6 month of transfer of capital asset.

2. Sec 54F --
If the entire sale consideration is invested in the purchase of a residential house property within a period of 2 years of transfer of capital asset.But for this section, the assessee must not hold more than one house property on the date of transfer.

Kapil Khanna

Kapil Khanna (Querist)
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13 July 2013 If I had constructed a minimal temporary (low cost) residential structure, then would I qualify for exemption under section 54 (capital gain portion only)?

Thanks,
Kapil

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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22 July 2025 Exemption on Long-Term Capital Gains (LTCG) for Sale of Land (Plot)
In your case, since you sold a residential plot of land (held for more than 3 years), the transaction qualifies as a long-term capital gain (LTCG). However, as you correctly pointed out, Section 54 does not apply directly to the sale of land or plot unless a house property is involved in the sale. Let's discuss the available options and exemptions based on your situation:

1. Section 54: Applicability
Section 54: This section allows for capital gains exemption when you sell a residential house property and purchase another residential house within 1 year before or 2 years after the sale or construct a house within 3 years.

Since you sold a plot of land and not a house property, Section 54 is not applicable.

2. Section 54EC: Investment in Specified Bonds
Section 54EC provides relief if you invest the long-term capital gain (LTCG) in specified bonds (e.g., bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC)) within 6 months from the date of the sale.

The maximum amount of exemption under this section is limited to ₹50 lakh (aggregate of investments made in bonds within a financial year). The bonds have a lock-in period of 5 years.

3. Section 54F: Investment in Residential Property
Section 54F is an alternative that could apply in your case if you satisfy the following conditions:

Condition 1: The entire sale consideration (from the sale of the plot of land) must be invested in purchasing or constructing a residential house within 2 years of the sale.

Condition 2: At the time of sale, you must not own more than one residential property (in addition to the property you are selling).

Condition 3: The residential house property purchased or constructed should be for personal use and not for investment.

Key point: The exemption under Section 54F applies on net capital gains (i.e., the capital gain portion) and not the entire sale consideration. Therefore, if you only invest the capital gain portion in a residential property, you will be eligible for the exemption.

4. Minimal Temporary Residential Structure:
Temporary Structure: Even if you construct a temporary or low-cost residential structure on the plot of land, the benefit of Section 54 still does not apply because it only applies to the sale of a residential house (not land or plot). The minimal structure might make the property residential, but for the exemption under Section 54, the sale must be of a house property.

Section 54F may still be applicable if:

You construct a residential house (even if it's a temporary or minimal one) on the plot and then invest the LTCG in another residential house as per the terms of Section 54F.

Note: The newly constructed property must be considered as a residential house as per the definition under the Income Tax Act. The low-cost or temporary structure must be something more than just land to qualify as a residential property under tax law.

Conclusion & Recommendations:
Section 54: Not applicable because land/plot sale does not qualify as residential house property.

Section 54EC: You may invest your LTCG in specified bonds (NHAI/REC) within 6 months to get exemption, but the total exemption is capped at ₹50 lakh.

Section 54F: You can avail of this exemption if the entire sale consideration (capital gain portion) is invested in the purchase or construction of a residential property within 2 years (or 3 years for construction). Make sure you do not own more than one residential property on the date of the sale.

Minimal Temporary Structure: A temporary structure may still qualify for Section 54F, but you will need to ensure that it is classified as a residential property (even if it’s minimal). The benefit under Section 54 is unavailable unless it’s a house property.

If your goal is to minimize taxes, I would recommend considering Section 54F if you're willing to reinvest in a new residential house, as it may provide a better long-term solution than investing in bonds under Section 54EC.

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