Section 54: do I must sell old property before completion of construction of new house?

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This discussion questions the timing requirements of Section 54 for capital gains tax exemption when constructing a new home. While purchasing a new house allows selling the old one up to a year after, constructing a new house seems to require selling the old one three years prior. The user highlights this discrepancy, questioning the 'step-motherly treatment' and suggesting it might be an oversight by lawmakers, as building typically follows selling an existing property.

Hasan Sheikh

Hasan Sheikh (Querist)

01 April 2024 As per section 54, one can sell old property either two years before or one year after purchase of a new residential house for the tax benefit. But for construction of the same new residential house, it mentions only of sell of old property three years prior to construction of new house? Do I have one year time after construction of the new house to sell the old property like in the case of purchase of the house? If not, why such step-motherly treatment in case of construction of house? It is common sense that one must build the new house before he can dispose of the old one. As per the funding, one can take home loan and then pre-pay the loan from the proceeds of the sale of old property, thus utilizing the sale towards newly constructed house only. Is Income tax department to stringent on the wording of the missing clause (not allowing reasonable time after construction of properly for selling) in the section 54 which just seems like stupid omission by the law makers?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

05 May 2024 The law makers are of the view that to purchase any property is easier than its construction, hence they wisely allowed one more year for exemption if any tax payer chooses to construct HP.

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

08 September 2024 Good Luck.

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