Save Tax on Long-Term Share & Mutual Fund Gains by Buying Property (Section 54F)
Welcome to our blog, Save Tax on Long-Term Share & Mutual Fund Gains by Buying Property (Section 54F). If you have earned profit by selling long-term shares or mutual funds, you don’t always need to pay high tax on it. Under Section 54F of the Income Tax Act, you can save this tax by investing the profit in a residential house. This way, instead of giving your money as tax, you can use it to buy or build your own home. The rule is simple – invest the profit within the given time limit and follow a few basic conditions, like not owning more than one house at the time of investment. Section 54F is a smart option to save tax and at the same time create a valuable property for your future.
Eligibility Criteria for Claiming Exemption under Section 54F
Who can claim
This benefit is only for Individuals and Hindu Undivided Families (HUFs). Companies, partnerships, or other entities cannot use Section 54F.Type of asset sold
You must sell a long-term capital asset like shares, mutual funds, gold, plot of land, etc. If you sell a residential house, this section won’t apply – you need to claim under Section 54 instead.Where to invest the money
The profit must be invested in one residential house property in India. Buying property outside India will not qualify.Time limit for investment –
Purchase option: You can buy a house within 1 year before or 2 years after the date of sale.
Construction option: You can construct a house within 3 years from the date of sale.
Restriction on number of houses owned
At the time of selling your asset, you should not own more than one house property (other than the new one you are going to buy/construct). If you already own 2 or more houses, you cannot claim this exemption.Amount of investment –
If you invest the full sale proceeds, you get 100% exemption from tax.
If you invest only part of it, exemption will be given in the same proportion as the amount invested.
Capital Gains Account Scheme (CGAS)
If you cannot use the money before the due date of filing your Income Tax Return, you can deposit it in a Capital Gains Account with a bank. This keeps your exemption valid until you use the money for buying or constructing the house.
Which Capital Assets Qualify for Section 54F (Shares & Mutual Funds)?
The Property Buying Under Section 54F benefit is available only when you sell a long-term capital asset. That means you must hold the asset for a minimum period before selling it. Once it becomes a “long-term asset,” you can reinvest the sale amount into a residential house to save tax. Here are the assets that qualify:
Long-Term Shares
Listed shares (shares traded on stock exchanges) – must be held for more than 12 months.
Unlisted shares (private company shares) – must be held for more than 24 months.
Long-Term Mutual Funds
Equity mutual funds – qualify if held for more than 12 months.
Debt or hybrid mutual funds – qualify if held for more than 36 months.
Other Long-Term Capital Assets
Gold, silver, or any other jewelry.
Land or plot of land (not used as a house).
Commercial property.
Any other long-term asset, except a residential house property.
⚠️ Important to Remember:
If you sell a residential house, Section 54F is not applicable. Instead, you need to claim under Section 54.
Only long-term assets qualify. If you sell a short-term asset, you cannot use Section 54F benefit.
Key Conditions to Avail Section 54F Exemption
To claim tax exemption under Section 54F, the taxpayer must follow certain rules and conditions. These ensure that the benefit is used only for genuine investment in residential property.
The taxpayer must not own more than one residential house (other than the new one purchased/constructed).
The investment must be made in only one residential house property.
The new property must be located in India.
The house must be purchased within 1 year before or 2 years after the sale, or constructed within 3 years from the date of sale.
If the money is not invested before filing the return, the balance must be deposited in a Capital Gains Account Scheme (CGAS).
Only individuals and HUFs are eligible to claim this exemption.
The asset sold must be a long-term capital asset (like shares, mutual funds, gold, land, etc., but not a residential house).
If the entire sale amount is invested, full exemption is available; if only part is invested, exemption is given proportionately.
The new property purchased should not be transferred or sold within 3 years of its purchase/ construction, otherwise the exemption claimed will be withdrawn.
Essential Documents Required to Claim Section 54F
Proof of Investment and Certification Requirements
Sale deed of shares/mutual funds
Purchase deed of new residential property
CGAS deposit proof (if applicable)
Bank statements showing investment flow
CA certificate for accurate reporting (optional but recommended)
Costs and Charges Associated with Section 54F Investment
Stamp Duty and Property Registration Charges
Buyers must pay stamp duty and registration charges, which vary by state (generally 5–8%).
These costs are considered as part of the investment in the new property.
Legal Fees and Professional Charges
Legal documentation and agreement drafting may involve additional expenses.
Professional consultation (CA/Lawyer) fees for filing Section 54F claim.
Step-by-Step Process to Claim Section 54F Exemption
Sell your long-term asset
When you sell your long-term shares, mutual funds, gold, or any other eligible asset, make sure you keep proper proof of the transaction such as contract notes, redemption statements, or sale deeds.Confirm it is long-term
Check whether the asset qualifies as a long-term capital asset—shares or equity mutual funds must be held for more than 12 months, while other assets like gold, land, or debt mutual funds usually need to be held for more than 36 months. If it does not meet this period, you cannot claim Section 54F.Calculate capital gains
Work out your profit by subtracting the purchase price and related expenses from the sale price. The amount you get is your long-term capital gain (LTCG), which would normally be taxable.Plan how much to invest
Decide how much of the sale proceeds you want to reinvest. If you put the entire amount into buying or constructing a house, you will get full exemption. If you invest only part of it, then the exemption will be given proportionately.Buy or construct a residential house within the time limit
You need to either buy a house within 1 year before or 2 years after the sale, or construct a house within 3 years from the sale date, in order to qualify for the exemption.Use Capital Gains Account Scheme (CGAS) if required
If you are unable to use the full sale amount before filing your Income Tax Return, deposit the unused balance into a Capital Gains Account Scheme (CGAS) with a bank to keep your exemption claim valid.Ensure the property meets conditions
The exemption is allowed only if you invest in one residential house property situated in India, and at the time of sale, you must not own more than one other residential property.Claim exemption in your ITR
When filing your Income Tax Return, declare the capital gain and claim exemption under Section 54F in the relevant section. Also, keep all supporting documents like purchase deed, builder receipts, and CGAS passbook as proof.Do not sell the new house for 3 years
You must hold the new residential house for at least 3 years; if you sell it earlier, the exemption you claimed will be cancelled and the saved tax will become payable.
Importance of Capital Gains Account Scheme (CGAS)
The Capital Gains Account Scheme (CGAS) is a helpful option for taxpayers who cannot immediately use their sale proceeds to buy or construct a house. Under Section 54F, if you don’t invest the money before the due date of filing your Income Tax Return, you must deposit the unutilized amount in a CGAS account with an authorized bank. By doing this, you safeguard your tax exemption claim, even though the money has not yet been spent on the property.
Once you are ready, you can withdraw the funds from this account to purchase or construct the residential house within the allowed time limit (2 years for purchase, 3 years for construction). The best part is that the CGAS account ensures full compliance with the Income Tax rules and avoids unnecessary tax liability. However, if you fail to deposit the balance in CGAS before the ITR due date, you will lose the exemption benefit, and the capital gains will become taxable. That’s why opening a CGAS account is an important step for anyone planning to save tax under Section 54F.
Time Limit for Purchase or Construction of Property
When you sell your long-term asset like shares, mutual funds, or gold, the Income Tax Act gives you a specific time period to invest the money in a new residential house and still claim tax exemption. If you plan to purchase a ready property, you can buy it within 1 year before the sale or up to 2 years after the sale. This means even if you already bought a house just before selling your asset, it can still qualify.
If you want to construct a new house, then you get a longer time frame — you must complete the construction within 3 years from the date of sale. These time limits are very important because if you miss them, you may lose the Section 54F exemption and end up paying tax on your capital gains.
Restriction on Owning Multiple Residential Properties
On the date of selling your long-term asset, you should not own more than one residential house (other than the new property you plan to buy/construct).
If you already own 2 or more houses, you cannot claim exemption under Section 54F.
The exemption is allowed only if you invest in one residential house in India.
If you buy another residential house within 2 years from the date of sale, the exemption may be withdrawn.
If you construct another residential house within 3 years, the exemption may also be withdrawn.
To keep the benefit, you should not own or buy multiple houses apart from the new one purchased for exemption.
Common Mistakes to Avoid While Claiming Section 54F Exemption
- Missing the time limit for buying or constructing the new house.
- Forgetting to deposit the unutilized amount in CGAS before the due date of filing ITR.
- Already owning more than one house on the date of selling your asset.
- Using the money for personal expenses instead of purchasing a house.
- Buying a property outside India, which does not qualify for exemption.
- Investing in more than one property instead of a single residential house.
- Selling the new property within 3 years, which cancels the exemption.
- Not keeping proper documents like sale deed, purchase deed, or CGAS passbook.
Expert Guidance on Saving Tax by Investing in Property (Section 54F)
Saving tax on long-term gains from shares and mutual funds can be confusing, but our team of experts makes it simple. Under Section 54F of the Income Tax Act, you can save tax by investing your capital gains into a residential property in India. We guide you step by step – from calculating your long-term capital gains to choosing the right property, understanding time limits, and depositing unutilized funds in the Capital Gains Account Scheme (CGAS) if required. Our goal is to help you maximize your tax benefits while complying fully with the law.
At itradda.com, our experienced consultants are ready to assist you with every detail of Section 54F, ensuring a smooth process and avoiding common mistakes. Whether it’s buying or constructing a new property, handling CGAS deposits, or filing your ITR correctly, we are here to make it hassle-free. Contact our team today at +91 97263 65833 for personalized guidance and start saving tax smartly on your long-term investments.
