Section 54F of the Income-tax Act, 1961 provides tax relief on long-term capital gains (LTCG) arising from the sale of any capital asset other than a residential house property, if such gains are invested in the purchase or construction of a residential house property in India.
This provision is designed to encourage investment in residential housing and to reduce the tax burden on individuals/HUFs who reinvest their capital gains.

Who is Eligible?

1. Eligible Assessee:
   • Individual
   • Hindu Undivided Family (HUF)
     Other entities (like companies, LLPs, firms, AOPs) cannot claim this exemption.
2. Eligible Asset for Sale:
   • Any long-term capital asset (shares, gold, plot of land, bonds, etc.)
   • Excluding a residential house property (since that is covered under Section 54).

Conditions for Claiming Exemption

To claim exemption under Section 54F, the following conditions must be satisfied:

1. Investment in a Residential House:
   • The assessee must purchase one residential house property in India.
   • The investment should be made either:
     • Within 1 year before the date of transfer of the original asset, or
     • Within 2 years after the date of transfer (if purchasing), or
     • Within 3 years after the date of transfer (if constructing).
2. Restriction on Number of Houses Owned:
   • On the date of transfer, the assesseemust not own more than one residential house property (other than the new one being purchased/constructed).
   • Exemption is not allowed if more than one residential house is already owned.
3. Restriction on Future Purchase/Construction:
   • The assessee should not purchase another residential house within 2 years or construct another house within 3 years from the date of transfer.
   • Violation of this condition will revoke the exemption, and the exempted capital gain will become taxable in the year of violation.

Amount of Exemption

The exemption amount depends on how much of the net consideration (not just capital gain) is invested in the new house:

• If entire net consideration is invested → Full exemption of capital gains.
• If part of the net consideration is invested → Exemption = (Capital Gain × Amount Invested) ÷ Net Consideration.
• Yes, the maximum exemption limit is capped at Rs. 10 crores. This limit applies from April 1, 2024 onwards.

👉Key Difference from Section 54:
In Section 54, exemption is based on capital gain invested, but under Section 54F, exemption is based on net sale consideration invested.

Deposit under Capital Gains Account Scheme (CGAS)

• If the capital gain is not immediately utilized for purchase/construction of house property before the due date of filing ITR under Section 139(1), the unutilized amount must be deposited in CGAS (Capital Gains Account Scheme).
• Amount deposited in CGAS will be treated as invested for the purpose of claiming exemption.
• If not utilized within the prescribed period (2/3 years), the unutilized amount will be taxable as LTCG in the year when the time limit expires.

Limit of Deduction

• There is no monetary upper limit prescribed under Section 54F.
• The maximum exemption depends on the amount of capital gains and investment made in the residential property.

Example

Mr. A sells a plot of land (LTCG asset) on 01-Aug-2025 for ₹80,00,000.

• Net consideration: ₹80,00,000
• Indexed cost: ₹20,00,000
• LTCG: ₹60,00,000

Case 1: Mr. A invests ₹80,00,000 in a new residential house.
👉 Full exemption of ₹60,00,000.

Case 2: Mr. A invests ₹40,00,000 in a new house.
👉 Exemption = ₹60,00,000 × (₹40,00,000 ÷ ₹80,00,000) = ₹30,00,000
👉 Taxable LTCG = ₹30,00,000.

Conclusion

Section 54F is a powerful tool for tax planning when selling long-term assets other than a house. By reinvesting sale proceeds into a residential property, individuals and HUFs can save significant tax on capital gains. However, the conditions regarding ownership of other houses, time limits, and reinvestment must be carefully followed, or else the exemption may be denied or withdrawn.