Capital gain arising out of sale of residential property

No. You cannot save tax by investing the gains in purchasing another House Property as STCG is available. Section 54 is applicble only when LTCG arises. There is no way you can save tax in the above situation.

Section 54EC [Investing in NHAI or REC bonds] is available only when there is transfer of Long Term Capital Asset [LTCA]. Since building to be sold is not LTCA section 54EC is not applicable. STCG will be taxable under normal slab hence you can claim deduction under chapter VI-A. One more way is that while registering the property you have to show the consideration as low as possible.

MR. SUMIT.......

NO U WILL NOT GET ANY BENEFIT OF TAX SAVINGS EVEN IF U PURCHASE ANOTHER RESIDENTIAL HOUSE AS U R SELLING A SHORT TERM CAPITAL ASSET

@ Alok Siddapur : If Mr Sumit registers the property with a Low sale  consideration, Section 55A may be touched where the Assessing officer may refer to the Stamp valuation Authority also section 50C may come into play, where the Value decided by the Stamp Valuation Authority will be adopted by the Assessing Officer as the Sale Consideration by rejecting the low consideration which was originally fixed. 

@ Mr. Sumit : You can save tax by investing money (ie. the sales consideration) in LIC, PPF, Mediclaim, National Savings Certificate (NSC).

@ Devendra: Under section 55A reference can be made to the valuation officer and not to the Stamp Valuation Authority. AO may refer to Stamp Valuation Authority only when he finds out that FVC is more than value adopted for payment of stamp duty. If we show that FVC is same as value adopted for payment of stamp duty, there wont be any problem. Coming to refering the case to Valuation Officer, if there is no problem with stamp valuation authority it will be difficult for AO to go to VO because stamp duty is usually considered as guidance for rate prevailing for that capital asset which will satisfy the definition of FMV.