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The High Court’s ruling reaffirms that Section 54F of the Income Tax Act applies to the purchase or construction of “a residential house”, and this phrase should be interpreted strictly as a single residential unit. The court emphasized that if the assessee purchases two separate flats — even within the same residential society — which are not adjacent or combined into one unit, the benefit of Section 54F will not apply. The High Court held that the phrase ‘a residential house’ in Section 54F of the Income Tax Act should be interpreted strictly to mean a single residential unit
This judgment highlights the need for taxpayers to carefully evaluate the nature and structure of the residential property purchased when seeking benefits under Section 54F.
Section | Sale Asset | Purchase Requirement | Time Period | CGAS Required |
---|---|---|---|---|
54 | Residential house (Individual or HUF only) | Residential house | Within 1 year before or 2 years after sale | ✅ Yes |
54B | Agricultural land | Agricultural land (rural) | Entire sale consideration to be reinvested | ✅ Yes |
(2nd 54B) | Any urban land | Purchase within 3 years | Land/building held for 2 years prior to sale | ✅ Yes |
54D | Industrial undertaking | Purchase within 3 years | Used for re-establishing industrial undertaking | ✅ Yes |
54EC | Any Long-Term Capital Asset (LTCA) | Invest in specified infrastructure bonds (e.g. NHAI/REC) | Within 6 months; bonds must be held for minimum 5 years | ✅ Yes |
Notes:
CGAS = Capital Gains Account Scheme: Required if the capital gain is not fully utilized before the due date of ITR filing.
Section 54 is for individuals/HUFs only, on sale of residential property and reinvestment into another residential property.
Section 54B applies only to sale of agricultural land and reinvestment into agricultural land.
Section 54D pertains to compulsory acquisition of industrial undertakings.
Section 54EC allows exemption by investing in notified bonds (up to ₹50 lakhs per financial year).
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