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Section 54:

Old Asset: Residential Property, New Asset: Residential Property

Under Section 54 – Any Long Term Capital Gain, arising to an Individual or HUF, from the Sale of a Residential
Property (whether Self-Occupied or on Rent) shall be exempt to the extent such capital gains is invested in the

1. Purchase of another Residential Property within 1 year before or 2 years after the due date of transfer of the
Property sold and/or

2. Construction of Residential house Property within a period of 3 years from the date of acquisition

Provided that the new Residential House Property purchased or constructed is not transferred within a period of 3
years from the date of acquisition

If the new property is sold within a period of 3 years from the date of its acquisition, then, for the purpose of computing
the capital gains on this transfer, the cost of acquisition of this house property shall be reduced by the amount of capital
gain exempt under section 54 earlier. The capital gain arising from this transfer will always be a short term capital gain.
Quantum of Deduction under Section 54

Capital Gains shall be exempt to the extent it is invested in the purchase and/or construction of another house i.e.

1. If the entire amount is equal to or less than the cost of the new house, then the entire capital gain shall be exempt

2. If the amount of Capital Gain is greater than the cost of the new house, then the cost of the new house shall be
allowed as an exemption

Relevant Points regarding Section 54
1. Budget 2014 has introduced an amendment to Section 54 and from Financial Year 2014-15 i.e.
Assessment Year 2015-16, exemption under Section 54 is available if the amount is re-invested in 1
Residential House situated in India.

2. The exemption under Section 54 would also be available if the amount is invested in an under construction
residential house. However, Service Tax is levied on purchase of under construction property.