Can a taxpayer claim exemption under both Section 54 and Section 54F by investing in a single new house?

Exemption Under Both Section 54 and Section 54F by Investing in a Single New House? Is it possible?

No, a taxpayer generally cannot claim exemptions under both **Section 54** and **Section 54F** of the Income Tax Act, 1961, by investing in a single new residential house. These sections target different scenarios—Section 54 for sales of residential properties and Section 54F for sales of any long-term capital asset other than a residential house—and claiming both simultaneously is not permitted due to their mutually exclusive eligibility criteria.[1][2][5]

Understanding Section 54: Exemption for Residential Property Sales

**Section 54** provides relief from long-term capital gains tax when a residential house is sold, and the gains are reinvested in purchasing or constructing another residential house in India. This exemption is available to individuals and Hindu Undivided Families (HUFs).[2][3][7]

Key Eligibility Criteria for Section 54

• Applies only to long-term capital gains from the sale of a residential property.
• Investment must be made in a new residential house: purchase within 1 year before or 2 years after the sale, or construction within 3 years.
• Full exemption up to the capital gains amount, capped at ₹10 crores from April 2024 onwards.[3][5]
• No restriction on owning multiple residential properties at the time of transfer.[1][4]

For example, if Ravi sells his Mumbai flat for ₹80 lakh (gains ₹50 lakh) and buys a new Pune apartment for ₹70 lakh, he gets full exemption under Section 54.[1]

Understanding Section 54F: Exemption for Non-Residential Asset Sales

**Section 54F** offers exemption on long-term capital gains from selling any asset except a residential house (e.g., land, shares, gold), provided the net sale consideration is reinvested in a residential house in India. It is also limited to individuals and HUFs.[2][3][5][7]

Key Eligibility Criteria for Section 54F

• Asset sold must not be a residential house.
• Taxpayer must not own more than one residential house (other than the new one) on the date of transfer.[1][4]
• Full exemption requires investing the entire net sale consideration; proportionate otherwise, using the formula: Capital Gains × (Investment / Net Sale Consideration).[5]
• Time limits mirror Section 54: 1 year before/2 years after for purchase, 3 years for construction.
• Capped at ₹10 crores, similar to Section 54.[3]

In an illustration, Mr. X sells land for ₹5 crores (gains proportionate) and invests ₹3 crores in a new house, claiming proportionate exemption under Section 54F, provided he owns no other house.[5]

Why Can’t You Claim Both Sections 54 and 54F on One House?

The core reason is the distinct applicability: Section 54 requires the sold asset to be a residential house, while Section 54F explicitly excludes residential houses. If a residential house is sold, only Section 54 applies; for non-residential assets, only Section 54F qualifies.[1][2][4][5]

• Mutually Exclusive Triggers: Selling a house → Section 54 only. Selling non-house asset → Section 54F only.[2][8]
• Ownership Condition Clash: Section 54F demands owning no more than one house pre-transfer (excluding new), but residential house sellers often own one, disqualifying 54F.[1][4]
• Investment Basis Difference: Section 54 uses capital gains; 54F uses net sale consideration. Combining them on one house would double-dip exemptions, which tax laws prohibit.[5]
• Judicial and Statutory Precedent: No provision allows dual claims; sources confirm separate application.[2][9]

Both sections share similarities like time limits, CGAS deposit option for unutilized amounts, and 3-year holding requirement for the new asset to retain exemption.[7] From AY 2020-21, Section 54 allows one-time investment in two houses (gains ≤ ₹2 crores), but this doesn’t extend to 54F dual claims.[2]

Practical Tips and Common Pitfalls

To maximize benefits:

• Verify asset type before sale to choose the right section.
• Use Capital Gains Account Scheme if investment deadlines are tight.[3][7]
• NRIs qualify for both, but new house must be in India.[1][3]

Avoid pitfalls like buying additional houses post-54F claim (withdraws exemption) or exceeding ₹10 crore cap.[2][5] Consult a Chartered Accountant for complex cases, especially with builder delays or joint ownership.[9]

In summary, while both sections encourage reinvestment in housing, they cannot overlap on a single new house investment. Strategic planning ensures compliance and optimal tax savings.