One House Sold… Two Houses Bought! Will Section 54 Still Save Your Tax?
[Query 1]
I am having an inherited house, 1 residential flat and a residential plot. My wife is having a residential flat. Now, we plan to sell our ancestral house. Can we purchase 2 flats and claim capital gain exemption? The capital gain shall be below 1 Cr. Will both the flats need to be on my name or can I purchase on wife’s or sons name? Please advise. What is time limit to purchase? [Shreee*********@gmail.com]
Opinion:
Many taxpayers believe that once they already own one or two houses, the doors of Section 54 are permanently closed. Fortunately, the Income-tax Act is not so possessive! Owning more houses may increase your wealth-but it doesn’t necessarily increase your capital gains tax. Let’s separate myth from reality.
1. Does already owning other houses matter?
Since you are selling a residential house, your case is governed by Section 54 of the Income-tax Act. The fact that you already own another residential flat, a residential plot or that your wife owns a residential flat does not disentitle you from claiming exemption under Section 54. In short, Section 54 looks at what you sell and what you buy-not your existing real estate portfolio.
Myth:“I already own another house, so Section 54 is not available”.
Reality: “That restriction applies to Section 54F-not Section 54.”
2. Can exemption be claimed for purchase of two flats?:
Yes, but only in specified circumstances.Where the amount of Long-Term Capital Gain (LTCG) does not exceed ₹2 crore, the law permits the assessee, at his option, to claim exemption by investing in two residential houses in India instead of one. However, this is a once-in-a-lifetime option. Once exercised, this option is lost forever.
Since you have mentioned that your capital gain is below ₹1 crore, the monetary condition is satisfied. You can claim exemption by investing in two residential flats.
In many Indian families, the first flat is for living, the second for children and the third is often purchased to maintain family harmony! Thankfully, the Income-tax Act doesn’t enquire into family politics. It merely checks whether the statutory conditions are satisfied.
Myth: “Two houses mean no exemption.”
Reality: “If the capital gain does not exceed ₹2 crore, Section 54 permits investment in two houses—but only once in a lifetime.”
3. Can the flats be purchased in your wife’s or son’s name?
This is probably the most crucial part of your query. The exemption under Section 54 is available to the assessee who earns the capital gain. Therefore, as a general rule, the new residential house should be purchased in your own name. Courts have, in some cases, allowed exemption where the property was purchased in the joint names of the assessee or spouse or other family members, particularly where the entire investment flowed from the assessee. However, purchasing the property exclusively in the name of the spouse or son is a litigation-prone area and the claim may invite avoidable litigation in such cases.Therefore, if the objective is to avoid unnecessary disputes with the Income-tax Department, it is advisable that both the flats should preferably be purchased in your own name or, at least, with you as the principal owner wherever justified by the facts.
Remember, tax planning is good. Tax litigation is not. A sale deed may take one day to register, but a tax dispute arising from it may take ten years to settle.
4. What is the time limit?
The law prescribes three simple timelines –
• Purchase: One year before or two years after the sale
• Construction: Within three years.
• Unutilized amount: Deposit in Capital Gain Account Scheme (CGAS) before the due date for filing the return.
The TAX Talk
Selling a house is easy. Saving capital gains tax requires planning before-not after-the sale deed is signed. In taxation, the best time to seek advice is before putting pen to paper, because once the document is registered, even the best tax consultant may not be able to rewrite it!
[Query 2]
In The Hitavada dated 13th of July, 2026, we went through your article regarding SGB. We have one query regarding that. If an investor has bought SGB from the secondary market before 1/4/2026 but the redemption is coming after 1/4/2026, then whether the exemption from LTCG will be available if the purchase date is more than 3 years from the date of redemption? Please give your opinion on this specific issue. [akl_*******ka@yahoo.co.in]
Opinion:
This is an excellent follow-up query because it concerns thousands of investors who purchased Sovereign Gold Bonds from the secondary market before the law was amended.
Prior to 01.04.2026, redemption of SGB by an individual was not regarded as a transfer and therefore remained outside the scope of capital gains taxation. The Finance Act, 2026 has narrowed this exemption by restricting it only to original subscribers who continue to hold the bonds till redemption.
In your case, the SGB was purchased before 01.04.2026 & the redemption will take place after 01.04.2026. The crucial point is that the exemption depends upon the law prevailing on the date of redemption-not on the date of purchase.
The relevant taxable event in your case occurs after 01.04.2026 & so the amended provision is likely to apply. Consequently, merely because the investment was made before the amendment would not, by itself, preserve the exemption.
One may certainly argue that investors who purchased SGBs before 01.04.2026 did so with the legitimate expectation that redemption would remain tax-free. Ideally, the Legislature could have protected such investments through a grandfathering provision, similar to the relief granted when LTCG on listed shares became taxable in 2018. Unfortunately, no such grandfathering has been provided in the present amendment.
In the absence of any transitional provision, the more legally sustainable view appears to be that redemption of SGBs acquired from the secondary market before 01/04/2026 but redeemed on or after 01.04.2026 would be governed by the amended law, notwithstanding the fact that the investment itself was made before that date.
The TAX Talk
In taxation, yesterday’s investment is not always protected by yesterday’s law. Sometimes, what matters is not when you invested-but when the law chooses to tax the transaction.
[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]
