This article shows you the right way to apply Section 54F to save tax when you sell shares and mutual funds to buy an under-construction house.

This article is a part of our detailed article series on the concept of tax savings using Section 54F. Ensure you have read the other parts here: Show/Hide

📚 Table of Contents

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• How is Section 54F applied to the purchase of an under-construction house?
• The key rules for applying Section 54F to an under-construction house
• We have an easy-to-use calculator for Section 54F exemption calculation
• Builder delays beyond 3 years
• Opening and using a Capital Gains account (CGAS)
• Timing the home loan application and prepayment of loan
• Payment for future instalments
• Payment for Interiors and appliances

How is Section 54F applied to the purchase of an under-construction house?

Introduced in 1983, Section 54F of the Income Tax act, as sourced from the Income Tax website, allows us to save capital gains tax if we sell mutual funds to buy a house.

The basic premise of this tax exemption is very simple:

• you wish to buy a house in India as an individual or HUF
• you sell Mutual funds, shares, gold etc, to buy the house
• on the date of the MF sale, you do not already own more than one house
• you don’t have to pay capital gains taxes (only if it is long term gains) on the MF/shares/gold you sold

We have extensive FAQs on Section 54F here in case you wish to know more: Frequently asked questions on Section 54F: the complete guide

The key rules for applying Section 54F to an under-construction house

Every calculation is based on the agreement date. Depending on the state, this is also called allotment date or builder-buyer-agreement date

• Rule 1: your share/MF sale that gets 54F advantage has to happen within one year before and one year after the agreement date
• Rule 2: the house has to be constructed within 3 years of the agreement date which is measured by the registration date
• Rule 3: you cannot sell the new house before 3 years of the registration date
• Rule 4: the new house is your first or second house and not your third, fourth etc
• Rule 5: everything like shares, mutual funds, RSUs, gold etc is eligible for selling . Only real-estate is not eligible

Violation of any of the rules above will invalidate Section 54F exemption. For more nuances, please refer to the FAQ article linked above.

Related:
Should you pay home loan EMI by SWP from mutual funds?

We have an easy-to-use calculator for Section 54F exemption calculation

If you want to use a Google Sheets / Excel version, please see below:

We will use Google sheets to create a simple calculator for this calculation. There is a link to download a pre-filled copy of the Google sheet via the button below.

Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.

Get the Sheet

Here are some tutorials on using the tool (click the image below)

Please refer to the Sec54F tab of the sheet once you open it. You can export this Sheet to Excel using the File > Download Menu option.

We will now cover some nuances for under-construction properties:

Builder delays beyond 3 years

Rule 2: the house has to be constructed within 3 years of the agreement date which is measured by the registration date

Builder delays beyond 3 years from the agreement date will violate rule 2. This rule is not strictly enforced as it is somewhat expected that the construction will be delayed. In such cases, the Income Tax Appellate Tribunal has ruled in favour of the tax-payer.

Opening and using a Capital Gains account (CGAS)

Capital Gains Account Scheme (CGAS) must be opened if you sell shares/mutual funds before 31st July (the income tax filing last date) and can spend it only after 31st July. In such a case, you must deposit the amount in the CGAS and later withdraw as per need. The CGAS account gives a small amount of interest.

At this point, the investor must weigh the benefit of tax saving using Section 54F by breaking their investments early vs. keeping the money invested longer.

Timing the home loan application and prepayment of loan

Rule 1: your share/MF sale that gets 54F advantage has to happen within one year before and one year after the agreement date

Here it is important to time the payments required to be made with the asset sale correctly. Once you sell the assets, you will have to deposit the amount in the CGAS in case you need it in the future. You can also prepay the home loan.

Payment for future instalments

If you have multiple payments more than a year after the agreement date, you cannot get Section 54F exemption unless you sold the assets within 1-year. We will give an example:

• Agreement date: 1st Jan 2024 » Section 54F benefit applies for MF/share sales up to 1st Jan 2025
• 30 lakhs Mutual fund sale date: 1st June 2024 » Section 54F benefit applies
• Builder payment date for 20 lakhs instalment: 1st July 2024
• CGAS account deposit for the 10 lakhs remaining: a must before 31st July 2024
• Mutual fund sale date: 1st Dec 2024 » Section 54F benefit applies
• Builder instalment payment date: 1st Feb 2025 (from CGAS and above 1st Dec sale)
• Mutual fund sale date: 1st Jun 2025  » Section 54F benefit DOES NOT apply
• Builder instalment payment date: 1st Feb 2026 » can be via home loan or other self funds (without 54F benefit) or if there is CGAS balance

Payment for Interiors and appliances

A house includes payments to the builder as well as reasonable costs for interiors, appliances etc. As long as you have proper GST bill for interiors and other costs, you should get Section 54F benefit.