Section 54

In order to save tax, you are only required to invest the amount equivalent to the long term capital gain, which is 20 lacs, and now you have already invested 25 lacs in another property within the period of 1 year prior to sale. The exemption availed by you shall be accepted by IT dept. 

Agree with Mr. Mihir,

Capital gain is saved up to the amount which is used in to buy /construct new house,if amount used for house purchased/construction is less than the amount of capital gain than the balance amount will be taxed as long term capital gain.

The date of commencement of the construction of the new house is not material.

To get the benefit of section 54, the assessee must have constructed the new house within the prescribed period from the date of sale of the old house - CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571 (Kar.).

Following case law CIT Vs. Mrs. Shahzada Begum (1988) 172 ITR 397 (AP) wherein it is held that the date of possession of the property purchased and not the date of registration of sale in favour of the assessee, in relevant for computing the prescribed time limit.

ITAT Bench on 13^th June 2012 – To claim 54F exemption it is not necessary that the possession of the flat should also be taken within the period of three years.

The taking of the possession may be delayed because of many factors not under the control of the assessee due to default on the part of the builder and, therefore, merely because the possession had not been taken within the period of three years, the exemption cannot be denied.

It's been really confusing,

But my personal view is,

delayed possession would not denied the exemption U/S 54..

However, A/O can ask for evidence for the proof..

https://www.sitcinfo.com/content/directTaxes/decisions/displayNamDetails.asp?rCase=CIT+Vs.+R.+L.+Sood&GoToRec=1&Scroll=Move

• The Delhi High Court in the case of ‘CIT vs. R.L. Sood’ 245 ITR 727(Del.) has also held that payment of substantial amount to the builder for purchase of a new flat within the specified period would entitle the taxpayer to exemption under Section 54, even though the builder may have handed over the possession of the flat to the taxpayer beyond the specified period.

Sir,

  From my point of view you can certainly claim the deduction under section 54. Because within 2 years you have invested that amount of capital gain. It does not matter whether you have got the possession right at the same time. But please note that ownership must be there. If it is registered in your name at the time of down payment you can claim it. Otherwise it's not possible.

according to me new residential house is to be constructed within a period of 3 years to claim deduction u/s 54.

if he is not able to take possession within a period of 3 years then exemption allowed earlier will b withdrawn.