Your Taxes

I sold a plot and declared the proceeds in my IT return for FY 2015-16. I am constructing a house on a different plot purchased in 2013.

I have claimed capital gains exemption under Section 54F to the extent of the cost of construction in my return filed in financial year 2015-16.

I am completing the construction during this financial year and plan to rent out the house. Will I be disallowed the exemption claimed earlier, as the house will be rented out? Is there any bar on letting out the house if it has been constructed for claiming the capital gains exemption?

Please note that I am not claiming any HRA exemption as I am staying in the house built by my father and the house referred to above is the only one in my possession.


As per the provisions of Income-tax Act, 1961, plot of land is considered to be a capital asset and any gains arising on sale of such land is subject to tax as capital gains. Further, if the land is sold after holding it for a period of more than 36 months during FY 2015-16 (24 months from FY 2017-18), the gains from such sale is treated as long term capital gains (LTCG). Else, the gain is considered to be a short term capital gain.

Exemption u/s 54F of the Act is available from LTCG if the net sales consideration of the plot of land sold (original asset) is invested to purchase a residential house property within a period of one year before or two years from the date of sale of original asset or for construction of a house property within three years (new asset) from the date of sale of the original asset.

Such exemption is not available if the individual purchases/acquires/holds another residential house property as specified below and income from such residential property is chargeable under the head “income from house property”: one, owns more than one residential house property, other than new asset, at the date of transfer of original long term asset; two, purchases any residential house other than new asset within one year of date of transfer of original asset; three, constructs any residential house, other than new asset, within three years of date of transfer of original long term asset.

I understand that once the construction of new house is completed (within the timeline of three years for claiming exemption under Section 54F) and considering that the house you are residing is owned by your father, you shall be in possession of only one residential house after sale of the original asset.

In such a scenario, receiving rental income on letting out of the new residential house, shall not dis-entitle you the exemption claimed u/s 54F.

The writer is a practising chartered accountant. Send your queries to

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