I sold shares to buy a house. Can I claim LTCG exemption against investment in the house under section 54F of I-T Act?

I am planning to buy a residential house along with my son for which we will take a home loan in the current financial year. We both have sold some shares on which we have earned long-term capital gains. Can we claim exemption under section 54F for long-term gain from shares against investment in the house, which we are planning to make during this year? Is there any monetary limit for claiming such exemption? I already have one residential house in my name. Can I still avail the long-term capital gains exemption?

Reply By Balwant Jain, a tax and investment advisor

One can claim exemption in respect of long-term capital gains earned on sale or transfer of any asset (here shares) other than a residential house if the net proceeds of sale of such assets are utilised for purchase or construction of a residential house within specified time limit. For a ready to move in house, the investments must be made within a period of two years from the date of sale of the asset and if investments are made for construction of a resident house, the construction should be completed within three years from the date of sale of the asset/s.   Even if a house is acquired within one year prior to sale of the asset/s, you can still claim this exemption.

In case the amount required to be utilised for claiming the exemption is not fully utilised by the due date of filing of your income tax return, you are required to deposit such unutilised money in a bank account under “Capital Gains Scheme”. The money deposited in this account can be used for purchase or construction of the house within the original time limits.

This exemption can only be claimed if you do not own more than one residential house in addition to the one being acquired for claiming this exemption. Since you own only one residential house apart from the one being purchased, you are entitled to avail the capital gains exemption available under section 54F.

Please note that it is not necessary for you to use the same money, as received on sale of the assets, for acquiring the new residential house if cost of the new house is equal to or more than the total of net sale consideration received from sale of such assets.

So even if you are taking a home loan to buy the house, you will still be able to claim the benefits of Section 54F if the cost of the house is more than the total value of shares sold by you. There is an upper limit of Rs 10 crore up to which investment in the residential house will qualify for exemption of long-term capital gains.

(Views expressed by the investment expert are his/her own.)

Also Read | Stock recommendations by analyst for February 8, 2024: SBI, Motherson and Intellect