Income from house sell

The long-term capital gain on the sale of property is exempted if the proceeds are invested in the purchase or construction of a house. The purchase of property can happen a year before the sale of the property in question or two years after its sale. Alternatively, one can invest in infrastructure bonds notified by the government. But one has to be mindful of the fact that these investments have a lock-in period.

Yes, the investment can be used to construct the new floor of the property. Please use the 2nd floor as a separate house.