Section 54F exemption for buying a plot

Ankur Jain will not qualify for the Section 54F exemption under these circumstances.

1. No House Construction: Section 54F requires a residential house to be constructed within 3 years; buying a vacant plot alone fails this requirement.

2. Cash Transactions: Dealing entirely in cash for property transactions above ₹20,000 is illegal and invites a 100% penalty under Indian tax laws. To claim the exemption legally, the plot must be paid for through banking channels, and a residential house must be constructed on it within 3 years.

Thank you for your reply 

I am not buying entirely in cash . Making the payment via internet banking or cheque. I was trying to say that I am not planning to take loans.

Query regards to construction, we are not sure whether we will construct a house there or not . Can we claim the exemption there and after 3 year if we don't construct the house then we will pay the tax. Is it viable option? Or does it attract any kind of penalty.

Section 54F exemption is for acquiring a residential house, not just a plot of land. A vacant plot alone, even if purchased with LTCG proceeds, does not qualify unless a residential house is constructed on it within 3 years of the date of transfer.

So in your scenario, if you buy the plot but do not start and complete construction of a residential house on it within 3 years, the Section 54F exemption will not apply. The law requires the new asset to be a residential house, which means a structure that can be used as a dwelling, not just the land.

On your other points: you do not own a residential house (only a vacant plot), so the ownership restriction under Section 54F, which disallows the exemption if you own more than one residential house, is not triggered here. And the payment mode (cash vs bank transfer) does not affect Section 54F eligibility.

The practical path forward: if you do intend to construct a house on the plot within 3 years, deposit the LTCG proceeds in a Capital Gains Account Scheme (CGAS) bank account before the ITR filing date to preserve the exemption claim while construction is in progress. This [capital gains exemption guide covering Sections 54, 54F and 54EC](https://taxgarden.in/blog/capital-gains-exemption-section-54-54f-54ec) has the full conditions and CGAS procedure.

Not applicable Mr. JAIN

@ Ankur Jain

Dont even ask questions about doing illegal things, like buying a plot of land entirely with cash.

If your money is from redempltion of mutual funds then to claim any sort of LTCG exemption, you will need to show the LTCG spent. You cannot draw cash and explain that as LTCG.

Hi Mr Rajan

I am not doing any illegal transaction here. If I would have planned to do so . I will not be asking queries. If you gone through entire thread you should have noticed that I was buying via internet channel mode not in cash.

Please choose your words carefully. :-) .

Even repair of a house is not exempted. 

Hi Ankur Jain

In English, it is called "THE CAT IS ALREADY OUT OF THE BAG".

You already said it.

And Income Tax Department watches the public forums in addition to Social Media sites for picking up the GEMs.

So you are already marked, I think.

That's great 😃.

God bless you . Period!🙏 

Do not worry this is a knowledge forum.

Do not worry this is a knowledge forum.

Hi Sabyasachi,

 Thank you. Yeah I am aware about it. I m on this forum since many year  and people are really helpful.☺️ 

We always have exceptions everywhere. 

Thanks for your sharing, so usefull, love it!!!

snowrider

Hi Ankur, To claim LTCG exemption under Section 54F, the Income Tax Act strictly requires the purchase or construction of a 'residential house property'. Merely purchasing a vacant plot of land without constructing a residential house on it within the stipulated timeline (3 years from the date of transfer) will make you completely ineligible for Section 54F exemption. Since you mentioned you do not intend to construct a residential house within 3 years, your mutual fund LTCG will be fully taxable. Also, a quick heads up since you actively invest in mutual funds and equities: if you or your spouse hold any US equities, RSUs, or foreign mutual funds/ETFs (via apps like Indmoney, Vested, or corporate ESPPs like Fidelity), ensure you declare them accurately in Schedule FA of ITR-2 or ITR-3. Many investors overlook this since foreign accounts don't show up on AIS/26AS, which can invite hefty non-disclosure penalties. You can check out itrfa.in if you ever need an automated Schedule FA calculation. Hope this clarifies!