Now Reading: Starting house construction before sale does not bar Section 54 exemption
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Starting house construction before sale does not bar Section 54 exemption
Starting house construction before sale does not bar Section 54 exemption
Taxpayers who start building a new house before selling their old one can still claim the Section 54 capital gains exemption, provided the construction is completed within three years of the sale. There is no legal bar against beginning construction before the transaction, but finishing it more than one year before the sale may disqualify the claim if the taxpayer owns other properties.
In a related development, the Delhi ITAT quashed a reassessment order against taxpayer Raj Kumar, who had started his Tilak Nagar home in October 2012 and sold his Paschim Vihar flat for Rs 53 lakh in October 2013. The tribunal ruled the Income Tax Department's Section 148 notice was issued beyond the limitation period. The ruling does not decide the Section 54 question on merits.
Unutilised capital gains must be deposited in the Capital Gains Account Scheme by the ITR due date. Failure to complete construction within three years will result in the unutilised amount being taxed as long-term capital gain in the year the period expires.
Indian Opinion Analysis
Both reports are from the same outlet and present the same basic set of rules and risks around Section 54 exemption. The first article is a purely explanatory piece, laying out the law with no case law or real example. The second is a straight news report of the ITAT Delhi decision in Raj Kumar's favour, but it carefully notes that the case was won on limitation grounds, not on the merits of whether starting construction before sale qualifies. Together they give a clear picture: the law allows some flexibility but the taxpayer must meet strict timelines and keep full records. What neither report does is quantify how often the tax department rejects such claims or how long litigation typically takes. The practical takeaway for a careful reader is that the three-year completion rule matters more than the start date, and that procedural mistakes by the AO can be the taxpayer's best fallback.
Coverage: 2 sources, 2 neutral
Sources (2): livemint.com (neutral report), livemint.com (2) (neutral report)
This story was synthesised by AI from the 2 sources linked above. Methodology and corrections.
Updated: this story now draws on 2 sources.
