Section 54 f - exemption from capital gains tax

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Ankur Kothari (Querist)
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27 March 2016 1. Invested Rs. 30 Lakhs on Under construction house from own funds in the financial year 2015-16.
2. Selling a plot with a Long term Capital Gain of Rs. 55 lakhs in March 2016.
3. About to invest a minimum of Rs. 25 lakhs more in the under construction house.
4. Investment Prior to Selling of Plot = 30 Lakh + Investment after selling the plot = 25 lakh totals 55 lakh.
5. Do I need to pay any tax now.

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)
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27 March 2016 Tax need not be paid. But the investment should be made before 31-7-2016. If not deposit the unspent amount in capital gains exemption scheme on or before 31-7-2016 and issue for construction after that date from that account.

Ankur Kothari

Ankur Kothari (Querist)
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27 March 2016 What about the amount that I have already invested in the under construction house before the sale of the plot.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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23 July 2025 Great question! You're referring to Section 54F of the Income Tax Act, which provides exemption from capital gains tax when long-term capital gains (LTCG) from a sale (like a plot of land) are invested in a residential house.

✅ Your Case in Summary:
Sold a plot in March 2016 with LTCG of ₹55 lakhs

Invested ₹30 lakhs in an under-construction house before the sale (FY 2015–16)

Planning to invest another ₹25 lakhs in the same house after the sale

Total investment: ₹55 lakhs (equal to the LTCG)

❓Key Question:
Can the ₹30 lakhs invested before selling the plot be considered for exemption under Section 54F?

🔍 Legal Position:
Under Section 54F, the exemption is allowed if:

The assessee constructs a residential house within 3 years after the date of transfer.

Investment must be made from the capital gains, but courts have allowed even pre-sale investments, if the total investment (before + after sale) is within the 3-year window, and the construction is completed.

⚖️ Relevant Case Law:
CIT v. K. Ramachandra Rao [2015] 277 CTR 522 (Karnataka HC)
Held: The law does not require that only the amount received from the sale should be used for construction. Even if the assessee utilized own funds before the sale, and subsequently invested capital gains (or reimbursed himself), exemption is allowed.

The total cost of construction is what matters — not the source or exact timing of every rupee.

💡 Capital Gains Account Scheme (CGAS):
You must utilize the capital gains before the due date of ITR filing (usually 31st July) of the assessment year, or deposit the unutilized amount into the Capital Gains Account Scheme (CGAS) before that date.

In your case:

Sale was in March 2016 → Assessment Year: 2016–17

Due date for return: 31 July 2016

You should either:

Invest the balance ₹25 lakhs before 31 July 2016, OR

Deposit it into CGAS before that date if you don’t invest immediately.

✅ Final Answer:
Yes, you can claim exemption for the entire ₹55 lakhs, even though ₹30 lakhs was invested before the plot was sold.

Make sure the total investment in the construction is completed within 3 years of the sale date (i.e., by March 2019).

No tax is payable now, provided you invest the balance or deposit it in CGAS before 31 July 2016.

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