Doubts regarding exemption under section 54 if we go for construction of a residential house.

[Kiran Verma]

I just gone through Section 54 and 54F and relevant case laws,notificatiions, and Circulars and this nice article. But the following doubts needs clarification. At first in the case of construction of a residential house, the time limit is 3 years. The doubt is this te years include bying the plot/land and construction or else is it compulsory that the plot/land should be purchased before 2 years and construction be completed in the next year or can purchase and construction be effected in the third year and completion off cousre before the end of 3rd year! 2. Is there any restriction in apportionment of the capital gains to be invested in plot/land and towards construction of the house? 3. Is there any restriction of the proposed construction of the house to meet the requirement such as a minimum plinth area or minimum of bed rooms or first floor or duplex like? My doubt is can i invest 80% of my gains in land and just 20% in the house built over there? If the author could clarify these doubts I shall be grateful Regards RK/25-07-2009

[DR.MARIAPPAN GOVINDARAJAN]

In my view there is no such restriction. You have to complete the entire construction within three years from the date of sale of the asset on which capital gains arised.

AI Summary

Section 54 exemption requires completion of residential construction within three years; no restriction on apportioning gains between land and construction. The exemption requires completion of the residential house within the statutory time limit from the date of sale; purchase of land and construction may both occur within that period provided the entire construction is completed by the deadline, and there is no restriction on apportioning capital gains between acquisition of plot and construction nor any specified minimum structural requirements for the house.