Reversal of exemption of capital gains exemption for non-construction of house within three years under Section 54F

I purchased a plot on 25/01/2006 for 12 lakhs and sold it on 31/03/2022 for 92 lakhs. After this, I purchased a plot of 65 Lakhs for the construction of a residential house in June 2022. The remaining amount of 25 lakh was deposited in Capital Gain a/c on 30th July 2022. I claimed exemption under Section 54F for the total long-term capital gains in respect of the sale of the plot. Now I wish to know whether I can utilize the remaining amount kept in Capital gain a/c for my son’s marriage. Is there any capital gain tax I have to pay?

Answer:   For claiming exemption under section 54F of the Income Tax Act, for long-term capital gains on the sale of any asset other than a residential house one has to invest the net consideration for purchase of one residential. The investment has to be made within two years from the date of sale of the asset. If a residential house has already been bought within one year before the sale of the asset, you can still claim the exemption. If you wish to construct a house, you are allowed an extended period of three years to get the construction completed to avail of this exemption.

Though you have already availed the full exemption by investing in a plot and depositing the balance money in the capital gains account, the exemption claimed earlier will be reversed if you fail to get the residential house on the plot completed within three years from the date of sale of the original plot. So will have to pay tax on the total capital gains if the construction of the house is not completed by 31 st March 2025.

You can withdraw the money in a capital gains account either for making payment for the construction of the house. You can also withdraw the money at any time after obtaining a letter from your assessing officer containing directions to the bank to allow such withdrawal. 

In my opinion, you cannot withdraw this money for the marriage of your son unless appropriate taxes have been paid and a letter from the assessing officer is obtained.


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Updated: 03 Aug 2023, 12:27 PM IST

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