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Friday, September 30, 2022

Section 54 Of The Income Tax Act

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Income Tax Act 54

The seller of a residential real estate is exempt from capital gains tax under Section 54 of the Income Tax Act. The clause permits individuals to get capital gains tax reduction if the earnings of the transaction are utilized to purchase new residential real estate. 

Sellers of residential real estate frequently sell their properties just to acquire another one for a number of reasons such as job relocation, retirement, and so forth. In such an instance, taxpayers sell a residence, not with the intention of making a profit, but rather to change homes. As a result, whenever a taxpayer sells a residential real estate and buys other, the individual is free from capital gains under Section 54 of the Income Tax Act.

Section 54 Eligibility Criteria

Section 54 of the Income Tax Act provides provisions for eligibility. To receive deductions within Section 54 of the Income Tax Act, the individual needs to meet the following criteria:

  • A taxpayer is a person or a HUF. Corporations, partnerships organizations, and Limited Liability Partnerships are not eligible for Section 54 exemption.
  • The transferring assets have to be long-term capital assets, such as a residence.
  • The taxpayer must buy another residence one year before or two years after the date of transference of the previous property or build a residence 3 years after the time of transaction of the previous property.


A taxpayer may claim a deduction per Section 54 of the Income Tax Act for just one residential asset owned or built-in India. If a taxpayer is participating in more than one such transaction over the taxpayer’s lifespan, the benefits will be accessible for only one of the transactions. 

Lastly, a taxpayer cannot sell the property in India and acquire a residence elsewhere while getting Section 54 benefits. The property must be acquired or built-in India exclusively.

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