Section 54F of the Income Tax Act lets you claim tax exemption if you reinvest in property - potentially saving lakhs. This guide helps you calculate how the exemption works, with eligibility criteria, and key timelines.

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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• What is Section 54F?
• How is a calculator for Section 54F helpful?
• Using the Google Sheets or Excel version of this calculator
• How does Section 54F work in practice?
• FAQs on Section 54F

What is Section 54F?

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

How is a calculator for Section 54F helpful?

Our simple-to-use calculator gives you a quick answer while you are analysing the right dates for selling mutual funds and other eligible assets to buy a house and save capital gains tax. Also, if you have already purchased or have been allotted the house, you can use this calculator to find out the suitable dates for selling assets to finance the house purchase.

Using the Google Sheets or Excel version of this calculator

We have an easy-to-use calculator for Section 54F exemption calculation that works in any browser using Google Sheets.

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 case studies 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.

Now we will explain how Section 54F actually works.

How does Section 54F work in practice?

To understand Section 54F, we need to first understand a few terms:

• Original asset: this is the asset sold to buy the house. This can be Mutual funds, shares, gold etc. This cannot be another house which comes under Section 54E
• Date of sale (DOS): date on which the original asset was sold
• New asset: the new house that is constructed / purchased. It must be in India
• What are the timelines: DOS must be within a year of purchase of the new asset. In case the new asset is being constructed, the construction must finish within three years of DOS
• the tax exemption is available only if you already own not more than one house. This rule is thus beneficial if you are buying your first or second house only. It also means that if you have taken the exemption once for your first house, you can take it again for your second house as well
• the capital gains must be long term

If your new house costs more than the mutual funds you sold, you can save lakhs in capital gains tax

If the cost of the new asset is X and the sale proceeds from original asset sales is Y, then

• if X ≥ Y, i.e. the new house is at least as expensive compared to the sale, then entire capital gains on original assets sale is tax-free
• if X < Y, then the capital gains exemption applies proportionally based on the cost of the new asset relative to the sale amount. For example, you sold 20 lakhs of assets and have a capital gains tax of 4 lakhs. The house costs 15 lakhs. The capital gains exempt from tax will be 15/20 * 4 = 3 lakhs. The other 1 lakh of capital gains will be taxable.

If another house is constructed/purchases within the same period (1 year for purchase / 3 year for construction) which is eligible for ‘income from house property’ i.e. given on rent, then the tax benefit received on the new asset construction is reversed and has to be paid in the previous financial year. This rule effectively means that:

• you sell 50 lakhs of mutual funds to buy a house (H1). The capital gains tax saved is ₹5 lakhs
• within 3 years of the sale of the MF, you buy/construct another house (H2)
• then the ₹5 lakh tax becomes payable in the financial year preceding the purchase of H2. This is of course not a problem if you don’t buy H2

If the new house is sold within three years of purchase / construction, the capital gains tax becomes payable in the financial year preceding the purchase of the house.

FAQs on Section 54F

We have a large list of FAQs on this topic here: Frequently asked questions on Section 54F: the complete guide.