Under Section 54 of the Income Tax Act, an individual or HUF selling a residential house property can claim exemption from such capital gains if they invest the proceeds in acquisition i.e. purchase or construction of another residential house property. For claiming this tax benefit, there are certain prescribed conditions which needs to be satisfied.

Following conditions should be satisfied to claim the benefit of section 54:

1. Who can avail: The benefit of section 54 is available only to an individual or HUF.
2. Type of capital asset: The asset transferred should be a long-term capital asset, being a residential house property.
3. Time period of investment: Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).
4. Number of Property purchase / constructed: Prior to amendment exemption can be claimed only in respect of one residential house property purchased/constructed in India. With effect from Assessment Year 2021-22, the Finance Act, 2020 has amended Section 54 to extend the benefit of exemption in respect of investment made in two residential house properties.
5. Property outside India: No exemption can be claimed in respect of house purchased outside India.
6. Capping of Exemption: The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long term capital gains does not exceed Rs. 2 crores.
7. Exemption once in Assessment Year: If assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year.