Section 54 exmeption on under construction property booked before sale of original asset

Tax queries 82 views 5 replies

Sreevidhya V

449 Points Joined March 2017

Dear All,

One of the client is planning to sell her residential property by aug 2025. she is eligible for LTCG. She has already booked a flat under construction in sep 2022 and started paying the installments, which will be completed by july 2026. the query is

is she eligible for sec 54 exemption in FY 25-26 by taking this as construction of house within 3 years of the sale of original asset in Aug 25? the possession date is supposed tobe july 2026
suppose if not completed, can we take the instalments already paid in sec 54 and balance payable if any can we invest in Capital Gain account scheme and claim the exemption?
Is the construction start date relevant for section 54? or only 3 years from the date of sale of asset, we need to receive the possesssion has tobe reckoned.

Kindly advise

Replies (5)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

197245 Points Joined July 2016

Correct.
Yes, but deposit it before filing relevant ITR.
All the payments made from 1 year before to date of possession (within three years) are eligible for exemption u/s. 54 IT act.

Sreevidhya V

449 Points Joined March 2017

Sir,

As usual, really appreciate your timely feed back on the query asked.

regarding the 3rd point, the allotment letter received and construction started in sep 2022 itself. So most of the significant payments had been made from sep 22 to aug 24. can we not claim the same then, as it is not within the time limit of one year before the sale date. only sep 24 to possession date installment only can be claimed? Thanks in advance

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

197245 Points Joined July 2016

Various other factors needs to be considered for the exemptions. Whether the agreement registerred in 2022 or yet to be registerred?

Sreevidhya V

449 Points Joined March 2017

Sir,

Yet tobe registered.

LegalDev

234 Points Joined June 2025

Yes, she can claim Section 54 exemption as long as the new house is completed within 3 years from the date of sale (i.e., by August 2028). Since the possession is expected in July 2026, it is well within the time limit.

If the construction is not completed by then, the amount already paid towards the new flat can be considered, and the balance amount should be deposited in the Capital Gains Account Scheme (CGAS) before the due date of filing the return, to keep the exemption valid.

For Section 54, what matters is that the construction/possession is completed within 3 years from the sale date — the date of starting construction is not relevant.