Exemption u/s 54 in under construction property

This query is : Resolved

TARUN JAIN (Querist)
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10 January 2015 Hello

My client has sold a long term residential premises in current year with Long term capital gain. He booked a residential under construction premises two years back on installment payment basis

He is going to pay the balance amount for the under construction premises in coming one year. My query is whether he can claim the exemption under sec 54 of the amount paid during last one year as well as the future payments in coming one year

Thanks in advance
Tarun Jain

CA Nitin K. Varshney

CA Nitin K. Varshney (Expert)
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10 January 2015 dear tarun,
deduction can be claimed, if amount expended 1 year before or 2/3 year after for constructing/purchasing of residential house. so he can claim the deduction. but deed should be executed within 2 years.

TARUN JAIN

TARUN JAIN (Querist)
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12 January 2015 Thanks Nitin for your reply. As I have mentioned the assessee has booked the flat two years back and also the deed is already been executed two years back. Can assessee claim the exemption of the amount paid during one year ?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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21 July 2024 Under Section 54 of the Income Tax Act, 1961, an individual can claim exemption from long-term capital gains tax if the gains are reinvested in the purchase or construction of a residential house property. Here's how it applies to your client's situation where they have sold a residential property and booked an under-construction property:

### Key Points to Consider:

1. **Booking of Under-Construction Property**:
- Your client has booked a residential property under construction two years ago on an installment payment basis.

2. **Execution of Deed**:
- The deed for the under-construction property has been executed two years ago.

3. **Reinvestment Requirement**:
- To claim exemption under Section 54, the reinvestment must be in a new residential house property.
- For under-construction properties, the exemption can be claimed if the construction is completed within 3 years from the date of sale of the original property.

### Claiming Exemption for Payments Made:

1. **Payments Made in Last One Year**:
- Your client can claim exemption for the amount paid towards the under-construction property during the last one year, provided the total amount is utilized for the completion of the construction within the stipulated timeframe.
- These payments are considered as part of the investment in the new residential property.

2. **Future Payments in Coming One Year**:
- Your client can also claim exemption for the future payments made towards the under-construction property in the coming one year, subject to the condition that the construction is completed within the overall period of 3 years from the date of sale of the original property.
- The exemption is available for the entire amount reinvested in the new residential property, including both past and future payments, as long as they are made within the specified timelines.

3. **Completion of Construction**:
- It's crucial that the construction of the under-construction property is completed within 3 years from the date of sale of the original property to avail the exemption under Section 54.
- The completion certificate or possession of the property should ideally be obtained within this period to satisfy the requirements of the law.

### Documentation and Compliance:

- Your client should maintain proper documentation of all payments made towards the under-construction property, including receipts and agreements.
- Ensure that all conditions under Section 54 are met, such as ownership, reinvestment timeline, and completion of construction.

### Conclusion:

Your client can claim exemption under Section 54 for the amount paid towards the under-construction residential property during the last one year and also for future payments made in the coming one year, provided the construction is completed within 3 years from the date of sale of the original property. It's advisable to consult with a tax advisor or chartered accountant to ensure proper compliance and to optimize the tax benefits available under Section 54 based on individual circumstances.