Claiming Section 54(f) benefit for under-construction property

I have recently purchase an under-construction property from a builder in Jul'22. I have to make payments for the property in installments linked to construction. Possession is expected in June 2025. I have a few doubts regarding claiming 54(f) benefits:

1.) Can I claim exemption on LTCG arising in FY22?

2.) As the possession is expected in Jun 2025, can I claim Section 54(f) in subsequent years (FY23, 24, 25) for LTCG that will arise on those years?

3.) In my ITR filing for this year, what should I show as the date of purchase as the property isn't fully constructed yet?

4.) Post receiving possession, I will be paying home loan EMI. Will the LTCG consumed for loan repayment in future years be eligible for section 54(f) benefit?

Thanks!

Hi Akash! Here’s a detailed response on claiming Section 54F exemption for an under-construction property:

1) Can you claim exemption on LTCG arising in FY22?

Yes, you can claim exemption under Section 54F if you invest the entire net sale proceeds from the transfer of a long-term capital asset into purchasing a residential house property within the prescribed timelines.
For an under-construction property, the investment timeline is crucial (discussed below).
The date of transfer and date of investment are key — if you purchased the under-construction property within 1 year before or 2 years after the date of transfer, or if you construct the property within 3 years, you can claim exemption.

2) Can you claim Section 54F exemption in subsequent years (FY23, 24, 25)?

The exemption relates to investment of capital gains within the stipulated period:
- Purchase of a ready property: within 1 year before or 2 years after transfer.
- For construction: the property must be constructed within 3 years from the date of transfer.
Since possession is in June 2025 and your purchase was in July 2022, you are within the 3-year construction window.
You do not claim exemption in multiple years, but for the capital gain arising in FY22, you can claim the exemption by showing the investment in the under-construction property which is expected to be completed within the 3 years.
For LTCG arising in later years (FY23, FY24), you cannot claim Section 54F again on the same investment. Section 54F exemption is linked to one capital gain event and one residential property purchase/construction per event.

3) What date of purchase should be shown in ITR for an under-construction property?

Show the date of agreement or possession date depending on what the Income Tax Department accepts.
For under-construction properties, usually the date of agreement for sale (booking date) is considered the date of purchase.
But for claiming Section 54F, the crucial factor is the possession or completion date — since the property is under construction, clearly mention the possession expected in June 2025.

4) Will LTCG consumed for loan repayment in future years be eligible for Section 54F?

No. Section 54F benefits apply only to the purchase or construction cost of the residential house property.
Repayment of home loan EMIs (principal or interest) does not qualify for exemption under Section 54F.
The exemption requires the capital gain to be invested in buying or constructing the property, not in loan repayments.

Summary:

You can claim exemption for LTCG arising in FY22 on the basis of investment in under-construction property, assuming possession by June 2025 (within 3 years).
No separate exemption for LTCG arising in subsequent years.
Use agreement date for purchase date in ITR.
Loan repayments do not qualify for Section 54F exemption.