Can You Have Your Exemption and Carry Forward Losses Too? A 54F Story
In response to my earlier articles published in The Hitavada (26.05.2025 & 02.06.2025) on the quirky world of Section 54F, I received an excellent query from Mr. Manoj Kumar Baishya (baishyamk@gmail.com) — a sharp-eyed taxpayer who’s clearly reading the fine print with interest! His questions echo the confusion many taxpayers face while navigating the capital gain exemption and related reporting in ITR. So, let’s break it down, bust some myths, and keep our tax nerves calm.
1. Is it compulsory to open a “Capital Gain account” in case “complete CG amount received from sale of equity share” is utilized for purchasing a new house (single house) in the same FY. As per the ITR-2 excel format, it is asking for i) Amount deposited in CG A/c after the due date, ii) Date of deposit, iii) A/c number, iv) IFSC code etc.?
Short answer: No. Long answer: Still no.
Opening a Capital Gain Account is not mandatory if the entire net sale consideration (not just capital gain) is utilized for purchasing or constructing a residential house before the due date of filing the return (usually 31st July). In such cases, there is no need to deposit the amount in a Capital Gain Account Scheme (CGAS), and you can directly report the transaction in ITR-2 without filling CGA details. However, since ITR utilities prompt for CGA details just leave those fields blank or mark them “Not Applicable,” provided your investment is completed before return filing. CGA comes into play only if the money remains unutilized as on the due date of ITR filing.
2. Utilization Certificate – Recently (April’25) have booked flat / house & paying installments (through Net banking) with receipt. Can these payment receipts be considered as utilization certificates?
Yes, payment receipts of installments made through banking channels (e.g., Net banking/NEFT/RTGS) are valid proof of utilization for the purpose of claiming exemption under section 54F. There is no requirement for a formal ‘utilization certificate’ under the Income Tax Act. Just ensure you maintain a proper trail — payment date, recipient (builder/developer), purpose (flat booking/installment), and property details.
3. In compliance to point no. 2, the utilization cut-off date is 31st March of that FY or Last due date of filling the ITR i.e., 31st July (Normally).
For claiming exemption without opening CGA, the cut-off date is the due date of filing ITR under section 139(1) — i.e., normally 31st July of the Assessment Year. If the amount is not utilized till that date, then to retain exemption benefits, the unutilized portion must be deposited in the CGAS account before the due date. So, it’s not 31st March, but 31st July (or extended due date, if any) that matters here.
4. Can Flat Booking date be considered as date of purchase (required for ITR-2 filling). In my case, the flat procession may take 1 to 2 year’s time from today.
a) The capital gain exemption would be available on the basis of booking and payment even without execution of the sale deed.
b) For the purpose of reckoning the 2 years or 3 years period for undisputable claim of capital gain exemption, ideally the registration coupled with possession should be there. However, the payments done prior to this period of 2 years / 3 years are eligible for capital gain exemption even if the registration is done subsequently within the said period.
c) There are some judicial precedents wherein it has been ruled that the date of flat booking or allotment is considered as the date of purchase, even if possession happens later — especially in case of builder agreements. This is based on the idea that the taxpayer acquires substantial rights on the booking date. But remember, this is accepted if the agreement is registered and payments are substantial. Always retain all relevant documents — booking letter, payment receipts, and builder agreements— for any future inquiry.
5. Can I claim deduction against CG u/s 54F in split years (against same property) i.e. each year’s capital gain from sale of equity share is utilized in that AY & rebate claimed during ITR filing, same process to be followed for 2-3 years?
Yes, if you are selling shares or other capital assets over multiple years and investing each year’s capital gains into the same under-construction property or for purchase of property, you can claim exemption u/s 54F each year, provided the total investment is within the construction period of 2 or 3 years from the date of the respective sale. But keep track of each sale and the corresponding investment — this will ensure you comply with the time-bound investment criteria under 54F.
6. Is it possible to simultaneously claim deduction against the capital gains (LTCG) u/s 54F & carry forward the Capital losses (LTCL) from sale proceeds of equity shares in the same AY?
This is a thought-provoking question that touches upon a nuanced interplay between capital gains exemption and capital loss carry-forward. Let’s break it down:
a) Basic Tax Principle:
Under the Income Tax Act, the capital gains are first computed after making intra-head adjustments—i.e., long-term capital loss (LTCL) from one asset is generally set off against long-term capital gain (LTCG) from another, as per Section 70(3). Only the net capital gain, if any, is considered for exemptions like Section 54F (investment in residential house). So, as per the default interpretation, losses are to be set off first, and only the remaining gain, if any, is eligible for exemption.
b) Judicial View – A Twist in the Tale:
A noteworthy judgment from ITAT Jaipur in the case of ACIT vs. Naresh Jain (ITA No. 159/JP/2019) has added an interesting dimension. In this case:
i) The taxpayer had LTCG from sale of commercial property, and LTCL from sale of listed shares.
ii) The Tribunal did not insist on intra-head adjustment of these losses and allowed full exemption u/s 54F on the property gain and Carry forward of the LTCL from shares for future years.
iii) In effect, the Tribunal permitted both: claim of capital gain exemption and retention of loss for carry-forward, even though they were under the same head (Capital Gains).
Conclusion – What Should You Do?
While the general legal position favors mandatory intra-head adjustment before claiming exemptions, case law suggests flexibility in specific factual situations. If the source and nature of capital gain and capital loss are distinct, and the computation does not violate statutory provisions, the possibility of both coexisting in the same return cannot be ruled out.
Subject to the litigation that might arise, you can claim an exemption from sale of some shares and can carry forward the loss from other assets/shares.
Parting Thoughts: Don’t Let Tax Laws Rattle You:
Yes, the law is complex. Yes, ITR forms ask questions like they’re writing a novel. But exemptions like Section 54F exist to encourage smart financial moves — not to trap you. So, read the law, keep records, file on time, and ask questions like Mr. Baishya did. Because in the end, taxes may be certain — but confusion doesn’t have to be. Keep the questions coming! The purpose of this column is to empower, educate, and encourage voluntary compliance.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
