This article explains the timelines, rules, and steps to be taken that protect taxpayers claiming Section 54F exemption when builders delay projects.

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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• Context of the article
  • The key rules for applying Section 54F to an under-construction house
  • We have an easy-to-use calculator for Section 54F exemption calculation
• How does selling land and then purchasing an under-construction property fit into Section 54F in this case?
• What Additional Conditions Must be True for the Section 54F exemption to be Applicable?
  • What Happens if Construction is Delayed?
  • What about the Role of CGAS for getting the Section 54F benefit?
• What is the Compliance Timeline to be followed here to get the Section 54F exemption?
  • Year 2025
  • Year 2026
  • Year 2027
  • Year 2028 (3-year window ends here)
  • Year 2029 and beyond
  • On Possession in 2030 or beyond

Context of the article

Here is a question from a reader on Section 54F.

Sold residential land in 2025. I am buying an under-construction property. Allotment in August 2025. Possession in 2030. Can I avail a capital gains benefit in sec. 54F?

Before addressing the question, we will first examine what Section 54F is.

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

There is an upper limit of Rs. 10 crores on the exemption amount under Section 54F as per Budget 2023.

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.

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 have covered more on Section 54F for under-construction properties in this article: How to save tax using Section 54F for an under-construction house?

How does selling land and then purchasing an under-construction property fit into Section 54F in this case?

Note Section 54F application is on the sale proceeds of the land and not on capital gains. If you sold land for ₹1 crore, of which LTCG was ₹40 lakhs, then:

• ₹40 lakhs is tax-free only if the entire ₹1 crore is used for the new house
• Only ₹20 lakhs is tax-free only if half of the entire ₹1 crore is used for the new house, and so on proportionately

Does this mean that the Section 54F exemption is valid in this case?

We will now examine a few additional nuances next.

What Additional Conditions Must be True for the Section 54F exemption to be Applicable?

What Happens if Construction is Delayed?

Section 54F applicability is conditional on the construction being completed within three years of the land sale date, i.e. by 2028.

However, the target completion date is 2030 here.

Precedents in the case of construction delays have sided in the favour of the Section 54F claimant if the delay in construction is entirely the builder’s fault.

That being said, documentation must be available that the builder “intends to complete” the construction within the August 2028 deadline. The builder-buyer-agreement (BBA), RERA documentation, etc., must clearly mention 2028. Otherwise, the case becomes weak for the Section 54F application.

Another possible avenue that should also be explored is whether the entire sale proceeds from the land sale must be paid off to the builder within the three-year window. This is where the Capital Gains Accounts Scheme (CGAS) comes in.

What about the Role of CGAS for getting the Section 54F benefit?

The tax rules require you to open a Capital Gains Account Scheme (CGAS) account before July 2026 and deposit any unutilised portion of the land sale proceeds in that. Future payments to the builder must be made from the CGAS. The timelines for CGAS usage are based on the land sale date:

• Land Sale date is before 31st Mar 2025: CGAS must be opened before 31 Jul 2025 (return filing deadline of AY 2025-2026), and any amount not paid to the builder must be deposited here.
• Land Sale date is between 1st Apr 2025 and 31st Mar 2026: CGAS must be opened before 31 Jul 2026 (return filing deadline of AY 2026-27), and any amount not paid to the builder must be deposited here.

What is the Compliance Timeline to be followed here to get the Section 54F exemption?

We will assume that the land was sold after 31st March 2025. Otherwise, the years below are to be shifted back by one.

Year 2025

• Land sale year: ensure that the gain is LTCG (>2 years holding period)
• Get allotment letter from builder (August 2025). Sign the BBA showing intent to complete by 2028 (or at least having a payment schedule that utilises the entire land sale proceeds by 2028)

Important documents: Registered Sale Deed**, LTCG computation for land sale, Allotment Letter / BBA, RERA status of project, proof of payments to builder via bank statements

Year 2026

• Open CGAS before July 2026 if all payments from the land sale have not already been made to the builder. Deposit any excess in CGAS
• Future payments from the builder to come from CGAS first until used up (maintain CGAS-related documentation: passbook, etc.)
• File Income Tax return (ITR) for FY 2025-26 before 31st July, showing both the land sale and claiming the Section 54F exemption

Important documents: proof of payments to the builder via bank statements, ITR, and CGAS-related documentation

Year 2027

• Keep making payments to the builder as per the payment plan
• Ensure that almost all of the land sale proceeds get paid this year as much as possible

Important documents: proof of payments to the builder via bank statements and CGAS-related documentation showing drawdown of the land-sale proceeds balance

Year 2028 (3-year window ends here)

• Ensure that all payments from the sale proceeds are completed to the builder before 31st Mar 2028
• If construction is incomplete, maintain proof of builder delay (letters, RERA filings, circulars)

Important documents: proof of payments to the builder via bank statements and CGAS-related documentation showing land-sale proceeds are now fully paid to the builder

Year 2029 and beyond

• Keep correspondence showing builder delays beyond your control (e.g. construction updates that show the shifting date)
• Save RERA extension orders, notices from the builder regarding delays, etc.

Important documents: proof of ongoing payments to the builder via bank statements, builder communication and demand letters, delay notices, RERA extension-related documentation

Note: The onus is on you to prove that the delay is beyond your control.

On Possession in 2030 or beyond

• Take the possession letter from the Builder
• Execute and register the Sale Deed/Conveyance Deed for the flat
• Keep utility bills and property tax records as proof of ownership, along with the registered deed

Important documents: Proof of completion date (possession letter), Sale Deed

If you face income-tax scrutiny on this topic, this documentation will be required to defend the Section 54F claim.