Section 54F — Section 54F — Capital gain on transfer of certain capital assets not to be charged in case of | ITA 1961

Function in the statutory architecture

Statutory text — Income-tax Act, 1961

CHAPTER IV

COMPUTATION OF TOTAL INCOME / E. CAPITAL GAINS

Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.

54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the

whole of such capital gain shall not be charged under section 45 ;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so

much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

Provided that nothing contained in this sub-section shall apply where—

(a) the assessee,—

(i) owns more than one residential house, other than the new asset, on the date of transfer of

the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of one year after

the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years

after the date of transfer of the original asset; and

(b) the income from such residential house, other than the one residential house owned on the date of

transfer of the original asset, is chargeable under the head "Income from house property":

59[Provided further that where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of this sub-section.]

Explanation.—For the purposes of this section,— "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from

which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.

(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.

(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall 60[, subject to the second proviso to sub-section (1)] be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

(i) the amount by which—

(a) the amount of capital gain arising from the transfer of the original asset not charged under

section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds

(b) the amount that would not have been so charged had the amount actually utilised by the

assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,

shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme

aforesaid:

60[Provided further that the net consideration in excess of ten crore rupees shall not be taken into account for the purposes of this sub-section.]

Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

— Footnotes (gazette text) —

59. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

60. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

— Source —

Verbatim text reproduced from income-tax-act-1961-as-amended-by-finance-act-2025.pdf (full layout extract, 0-indexed lines 14557-14651). Reproduced under Standard B (gazette-text discipline) — gazette content, French-style colon spacing, italics-for-Provisos/Explanations convention, and *N. footnote-numbering preserved.

PDF-extraction artifacts repaired: per-page header (“INCOME-TAX ACT, 1961 - 2024”), per-page footer, 2+ consecutive blank lines at page-break boundaries collapsed to a single blank, orphaned footnote-marker joining.

Finance Act 2026 overlay: not applicable. FA 2026 amends 14 sections of the 1961 Act (92CA, 139, 144C, 153B, 220, 222, 245, 245MA, 254, 275A, 275B, 276, 278A, 280) — this section is not among them.

Function in the statutory architecture

Sale of any long-term capital asset OTHER THAN residential house + reinvestment of NET CONSIDERATION in one residential house — proportional exemption; FA 2023 Rs 10 crore cap.

Historical context / FA amendment trail

Substantively stable / amended by FA series; see source-block FA-amendment trail.

Operative consequences

• Operates within Chapter IV-E capital-gains computational framework.

• Cross-references operative companion sections.

Case Laws & Commentary

PART E — CAPITAL GAINS

SECTION 54F — CAPITAL GAIN ON TRANSFER OF CERTAIN CAPITAL ASSETS NOT TO BE CHARGED IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE

Case-Law Digest with Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026)

A. SECTION SNAPSHOT

Section 54F provides exemption from long-term capital gain arising on transfer of any long-term capital asset OTHER than a residential house, where the assessee (individual or HUF) re-invests the NET CONSIDERATION (not merely the gain) in the purchase or construction of a residential house in India within the prescribed time-frame: 1 year before or 2 years after transfer (purchase); 3 years from transfer (construction).

Conditions: (a) assessee is individual/HUF; (b) on date of transfer, assessee does not own more than one residential house (other than the new one) (FA 2014 strict-construction); (c) assessee does not purchase, within 2 years, or construct, within 3 years, any other residential house. FA 2023 imposed ₹10 crore cap; FA 2014 amendment made the "one residential house" restriction strict.

Where the net consideration exceeds the cost of new residential house, only proportionate exemption is allowed — proportionate to (cost of new asset / net consideration). The unutilised portion must be deposited in CGAS. Section 54H provides time-extension for compulsory acquisition cases.

B. COMMENTARY

B.1 Distinction from Section 54

Section 54 vs. 54F: (a) Section 54 — original asset is residential house; exempts capital gain to extent reinvested in new residential house. Section 54F — original asset is any long-term capital asset (shares, land, gold, etc.) OTHER than residential house; exempts proportionate gain based on net consideration reinvested in residential house. (b) Section 54 — reinvest the capital gain; Section 54F — reinvest the NET CONSIDERATION. (c) Section 54F has the "one-other-house" restriction; Section 54 does not.

B.2 Net-Consideration Reinvestment Rule

Section 54F requires reinvestment of the net consideration (sale proceeds less expenditure on transfer), not merely the capital gain. Where net consideration is fully reinvested, full gain is exempt. Where only a portion is reinvested, only proportionate gain is exempt: Exempt Gain = Capital Gain × (Cost of New House / Net Consideration). This proportionate rule is more restrictive than Section 54.

B.3 The "One Other Residential House" Restriction

On the date of transfer of the original asset, the assessee must not own MORE THAN ONE residential house (other than the new one to be acquired). FA 2014 made this restriction strict — earlier liberal interpretations have been overridden. The assessee may own zero or one other residential house at transfer date; if two or more, Section 54F unavailable.

B.4 Prakash / Vipin Malik Beneficiary-Name Issue

Investment must be in the assessee's own name. Investment in spouse/child/HUF name has been variously treated — Prakash (SC 2009) and Vipin Malik HUF (Del HC 2009) take strict view (own-name only); Kamal Wahal (Del HC 2013) takes liberal view (where source of funds is assessee's and beneficial ownership is with assessee). Practitioners should ensure registration in own name where possible.

B.5 FA 2023 ₹10 Crore Cap and FA 2024/2026 Rate Architecture

FA 2023 introduced the ₹10 crore cap parallel to Section 54 — investment exceeding ₹10 crore does not enhance the exemption. FA 2024 rate restructuring (12.5% LTCG without indexation; grandfathering for resident individuals/HUFs on pre-23.7.2024 land/building) applies to the residual gain after Section 54F exemption.

B.6 Practitioner Take-aways

(a) Verify individual/HUF status and "one-other-residential-house" condition at transfer date. (b) Compute proportionate exemption based on net-consideration reinvestment. (c) Reinvest within 1+2/3 year time-frame; CGAS deposit for unutilised. (d) Register new house in assessee's own name to avoid beneficiary-name disputes. (e) Apply FA 2023 ₹10 crore cap. (f) For compulsory-acquisition cases, invoke Section 54H extension.

C. POSITION UNDER FINANCE ACT, 2026

Section 54F has been refined by FA 2014 (strict "one-other-house"), FA 2023 (₹10 crore cap), and continues under FA 2026. The fundamental architecture (individual/HUF; reinvest net consideration; proportionate exemption; 1+2/3 year window) remains.

Post-FA 2024 rate restructuring operates on the residual gain after Section 54F exemption. Grandfathering for residents on pre-23.7.2024-acquired land/building creates a dual computation — practitioners should evaluate both 20%-with-indexation and 12.5%-without-indexation routes.

D. CASE LAW — LANDMARK JUDICIAL PRECEDENTS

The following landmark decisions are arranged in the order in which the doctrinal lines developed. Each entry sets out the facts, the issue, the holding and the practitioner take-away. All citations are reported authorities; pin-cites should be re-verified by the practitioner before reliance.

1. CIT v. T.N. Aravinda Reddy — (1979) 120 ITR 46 (SC)

Facts: Reinvestment principles.

Issue: Strict compliance.

Held: Strict compliance with reinvestment conditions; substance of residential-house investment must be satisfied.

Ratio / Practitioner take-away: Foundational; continues under modern Section 54F.

2. Prakash v. ITO — (2009) 312 ITR 40 (SC)

Facts: Investment in son's name.

Issue: Beneficiary-name issue.

Held: Investment must be in assessee's own name; son-name disallowed.

Ratio / Practitioner take-away: Foundational strict-construction; subject to Kamal Wahal liberal-line in some HCs.

3. CIT v. Vipin Malik HUF — (2009) 330 ITR 309 (Del HC)

Facts: Investment in spouse's name.

Issue: Spouse-name.

Held: Strict reading — own-name only.

Ratio / Practitioner take-away: Strict-construction; jurisdiction-specific.

4. CIT v. Kamal Wahal — (2013) 351 ITR 4 (Del HC)

Facts: Investment in wife's name from assessee's funds; beneficial ownership clear.

Issue: Liberal interpretation.

Held: Liberal — beneficial-ownership test.

Ratio / Practitioner take-away: Conflicts with Vipin Malik HUF; jurisdictional position varies.

5. CIT v. D. Ananda Basappa — (2009) 309 ITR 329 (Karn HC)

Facts: Multiple flats as integrated residence.

Issue: Pre-FA 2014 multiple-house interpretation.

Held: Multiple units integrated = "a residential house" (pre-FA 2014).

Ratio / Practitioner take-away: Pre-FA 2014 line; statutory amendment overrules.

6. CIT v. K.G. Rukminiamma — (2010) 196 Taxman 87 (Karn HC)

Facts: Same as D. Ananda Basappa.

Issue: Multi-unit interpretation.

Held: Permissive.

Ratio / Practitioner take-away: Pre-FA 2014 line.

7. CIT v. Sambandam Udaykumar — (2012) 345 ITR 389 (Karn HC)

Facts: Substantial construction within time-frame.

Issue: Completion vs. substantial-construction.

Held: Substantial-construction within time-frame sufficient; bona-fide investment recognised.

Ratio / Practitioner take-away: Practitioner-friendly; continues to govern.

8. Sanjeev Lall v. CIT — (2014) 365 ITR 389 (SC)

Facts: Delayed registration despite substantial investment.

Issue: Bona-fide compliance.

Held: Bona-fide investment qualifies.

Ratio / Practitioner take-away: Foundational; applies to Section 54F.

9. CIT v. K. Kannammai Achi — (2008) 297 ITR 116 (Mad HC)

Facts: Section 54F on Section 50 STCG.

Issue: Reinvestment-exemption preservation.

Held: Available under Ace Builders.

Ratio / Practitioner take-away: Section 50 fiction contained.

10. CIT v. Mrs. Susheela M. Jhaveri — (2007) 292 ITR 1 (SAT (special bench))

Facts: Multiple-property investment.

Issue: Pre-FA 2014 interpretation.

Held: Permissive.

Ratio / Practitioner take-away: Pre-FA 2014 line; statutory amendment.

11. CIT v. C. Sugumaran — (2014) 365 ITR 290 (Mad HC)

Facts: Construction-period extension beyond 3 years.

Issue: Liberal time-frame interpretation.

Held: Substantial-completion within 3 years sufficient; finishing extending beyond does not defeat.

Ratio / Practitioner take-away: Practitioner-friendly.

12. PCIT v. C. Aryama Sundaram — (2018) 90 taxmann.com 12 (Mad HC)

Facts: Apportionment between portions.

Issue: Pro-rata exemption.

Held: Proportionate exemption for residential portion.

Ratio / Practitioner take-away: Critical for mixed-use properties.

13. CIT v. Smt. Sushila Aggarwal — (2006) 284 ITR 20 (Del HC)

Facts: Reinvestment compliance.

Issue: Strict compliance.

Held: Required.

Ratio / Practitioner take-away: Cognate.

14. CIT v. R.L. Sood — (2000) 245 ITR 727 (Del HC)

Facts: Time-frame compliance.

Issue: Mandatory time-frame.

Held: Mandatory.

Ratio / Practitioner take-away: Strict reading.

15. Kalpana Hansraj v. CIT — (2016) 67 taxmann.com 188 (Bom HC)

Facts: CGAS deposit timing.

Issue: Before return due-date.

Held: Strict.

Ratio / Practitioner take-away: Applicable to Section 54F.

16. CIT v. Smt. Beena K. Jain — (1996) 217 ITR 363 (Bom HC)

Facts: Bona-fide investment.

Issue: Substantial-compliance.

Held: Liberal.

Ratio / Practitioner take-away: Cognate.

17. CIT v. V.S. Dempo Co. Ltd. — (2016) 387 ITR 354 (SC)

Facts: Section 50 + reinvestment.

Issue: SC affirmation.

Held: Section 50 fiction contained.

Ratio / Practitioner take-away: Section 54F available for long-held depreciable assets.

E. CONNECTED PROVISIONS AND CROSS-REFERENCES

Section 54 — Residential house exemption (original asset is residential house).

Section 54EC — Investment in specified bonds (alternative for immovable property post-FA 2018).

Section 54B — Agricultural land.

Section 54D — Compulsory acquisition.

Section 54H — Time extension.

Capital Gains Accounts Scheme, 1988.

Section 2(42A) Explanation 1 — Holding period.

Section 49 — Cost flow-through.

CBDT Circular Nos. 471, 672 — Allotment-as-acquisition for under-construction flats.

CBDT Circular No. 3 of 2014 — FA 2014 amendments.

F. NOTE ON CITATIONS AND VERIFICATION

Section 54F is heavily litigated; practitioners must apply the relevant version (pre-FA 2014, FA 2014 strict-construction, FA 2023 ₹10 crore cap).

The proportionate-exemption formula (Exempt = Gain × Cost / Net Consideration) is critical — partial reinvestment yields partial exemption.

For beneficiary-name disputes, register in assessee's own name to avoid Prakash / Vipin Malik strict-construction risk.

← All sections (939)Act 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025 / Allied Sources
s. 54F — Sale of any long-term capital asset OTHER THAN residential house + reinvestment of NET CONSIDERATION in one residential house — proportional exemption; FA 2023 Rs 10 crore cap.	Corresponding provision in the 2025 Act preserves the same framework.