Understanding Section 54/54F Exemptions: Saving Tax on Capital Gains with
Residential Property Investments
By CA Bhavesh Panpaliya
Q1. What are Section 54 and Section 54F exemptions under the Income Tax Act?
Answer:
These sections are powerful tools for saving long-term capital gains (LTCG) tax by
investing in residential property.
• Section 54: Applicable when you sell a residential house and reinvest in another
residential house.
• Section 54F: Applicable when you sell any other long-term capital asset (like
land, shares, etc.) and reinvest the entire net consideration in a residential house.
Key Insight: You must invest within 1 year before or 2 years after the sale (or
complete construction within 3 years).
Q2. Does the size of the house vs. land matter for exemption?
Answer:
Not at all. Even a small house built on a large plot qualifies.
Delhi ITAT in Girish Mohan v. ACIT (2023) confirmed that the exemption extends to the
entire cost — land + house, regardless of scale.
Example: If you build a 1BHK on a 1-acre plot, the whole cost (land + construction) is
eligible.
Q3. Can I claim exemption on vacant land attached to the house?
Answer:
Yes! As long as the land is "appurtenant" to the residential house (i.e., part of the same
property), it qualifies — even without construction