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Exemption u/s 54

28 January 2021

I am a CA Inter Student...

I learnt that to avail the exemption u/s 54 (Capital Gain), one should purchase a residential House Property (RHP) within 2 year of transfer (or, before 1 year of transfer) or construct the house property within 3 years pf transfer.

I have a doubt whether purchase of a RHP and then improving it (making additional floors) amounts to construction?

Can I purchase a RHP after 2 year (before 3 year) and reconstruct it and avail the same exemption?

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1 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24583 Points)
Replied 28 January 2021

Yes by making additional floors that should be construction by cost of improvement

No, you have to hold the property for minimum 3 years, if you sale the said property before that you are not eligible for deduction u/s 54 because it is available only for LTCG
in that case if you sale it then such deduction will be taxable.. You should purchase the RHP within 2 years after transfer but after holding of the property for 3 years