Sections 54 and 54F, Without the Jargon

You can sometimes avoid paying tax on a property sale entirely, by putting the money into another house. The rules are strict, so here they are plainly.

The idea

The law recognises that someone selling one home to buy another has not really enriched themselves. So if you reinvest, you can reduce or remove the tax on the gain.

The two main routes

Selling a residential house and buying another. You reinvest the gain into a new residential property, and to the extent you do, the gain is exempt.

Selling something else, such as a plot, and buying a house. Here you generally have to reinvest the whole sale consideration rather than just the gain, and the exemption is proportionate if you invest less.

That difference catches people out. Selling a plot and reinvesting only the profit will not fully protect you.

The timelines, which are absolute

• Buying an existing property: generally within one year before or two years after the sale
• Constructing: generally within three years of the sale

Miss them and the exemption is simply gone. There is no discretion to be argued for.

The account nobody tells you about

Suppose your return is due and you have not reinvested yet. You can still claim the exemption. Deposit the money into a capital gains account with a bank, then use it within the time limits.

Forgetting this step is one of the most expensive mistakes there is. People fully intend to buy, do not manage it before the filing deadline, and lose an exemption they would otherwise have kept.

Other conditions worth knowing

• The new property generally has to be in India
• Selling the new property within three years can undo the exemption
• There are limits on how many houses you can already own for some of these routes
• The amounts qualifying have caps in certain cases

Your accountant confirms which route fits your situation. Our job is to establish the gain correctly in the first place, which everything else is calculated from.