Section 54

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jay joshi (Querist)
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25 March 2016 Respected sir,

I own one residential house property-1 and I have purchased another residential house property-2 in 05 april, 2013. I have given the residential house property-2 on rent. If I sold my one house property-1 on 04 july, 2013. Can I get exemption u/s 54 for capital gain on sell of property-1 against purchase of property-2 ? Also note that I have purchased property-3 as on 10 july, 2013.

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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25 March 2016 You will not get any exemption, u/s 54 you are eligible to claim CG on one property only.

jay joshi

jay joshi (Querist)
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26 March 2016 So, according to you we take the exemption of either purchase of residential house-2 or residential house-3.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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23 July 2025 Yes, your understanding is broadly correct, but let’s go into detail for clarity under Section 54 of the Income Tax Act.

🧾 Facts Recap:
You sold Property-1 (residential) on 04 July 2013.

You purchased Property-2 on 05 April 2013 (i.e., before sale of Property-1).

You purchased Property-3 on 10 July 2013 (i.e., after sale of Property-1).

Property-2 is rented.

✅ Section 54 Conditions (as applicable to AY 2014–15):
To claim exemption:

The property sold must be a long-term residential property.

The taxpayer must purchase one residential house in India:

Within 1 year before, or

Within 2 years after, or

Construct within 3 years after the date of sale.

🔍 Key Point (Applicable in AY 2014–15):
At the time (FY 2013–14 / AY 2014–15), exemption was available for investment in only one residential house.

It was only from AY 2020–21 that Section 54 was amended to allow exemption for investment in two residential houses (and even that is limited to capital gains not exceeding ₹2 crore and once in a lifetime).

🧮 How Section 54 Applies to Your Case:
Property Date of Purchase Eligibility for Section 54
Property-2 05 April 2013 ✅ Yes (within 1 year before date of sale)
Property-3 10 July 2013 ❌ No (Second property purchased after sale – not allowed under then-applicable law)

Even though both Property-2 and Property-3 fall within the allowed window time-wise, you can claim exemption only for one property (Property-2 or Property-3), not both.

Also, it doesn’t matter if Property-2 is given on rent—as long as it is a residential house in India, it qualifies for exemption.

✅ Conclusion:
You can claim Section 54 exemption against either:

Property-2 (purchased before sale, so technically more appropriate); or

Property-3 (purchased within 1 week after sale).

But you must choose only one, not both, for the exemption in AY 2014–15.

💡 Tip: Choose the property that gives maximum exemption (i.e., where the capital gain is most fully utilized by the investment).

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