Relief when a residential house (long-term) is sold. Exemption available if the assessee: Purchases a new residential house within 1 year before or 2 years after the transfer, or Constructs a new residential house within 3 years after the transfer.

Relief when any long-term capital asset other than a house is sold. Exemption if assessee: Purchases a new residential house within 1 year before or 2 years after, or Constructs a residential house within 3 years.

Commencement of Construction – Must construction begin only after the date of transfer, or can it commence before?

Nature of Work – Does extension, alteration or repair qualify as “construction,” or must it be a genuinely new residential house?

CIT v. V. Pradeep Kumar (Madras HC) (2006):

Facts: Assessee claimed exemption for extension/alteration of an existing house.

Held: Not eligible. Extension/renovation is different from construction of a “new residential house.”

Genuine Construction/Reconstruction = Eligible

CIT v. Ashok Narayan (Karnataka HC) (2009) 318 ITR 246:

Facts: Reconstruction on the same plot, construction had even started before sale.

Held: Eligible. What matters is creation of a new residential house within 3 years.

Principle: Commencement before transfer does not bar exemption.

Pushpa v. ITO (Kerala HC):

Facts: Old structure demolished; new house built.

Held: Eligible for 54F exemption.

On commencement of construction:

Sections 54/54F are silent about the starting date. Courts have clarified: construction may begin before transfer, provided completion is within 3 years.

Mere repairs, alterations, extensions do not amount to “construction.” Reconstruction/demolition and further, new construction is eligible, as it results in a new residential house.

Substance matters: The end result must be a new dwelling unit, not just an improvement of an existing one.