Selling a Property and Buying an Under-Construction Apartment: Why Timing Is Critical for Capital Gains Tax Exemption
Introduction Reinvesting proceeds from the sale of a residential property into another home is a common tax-planning strategy in India. However, when such reinvestment is made in an under-construction property , delays in completion can severely jeopardise the Long-Term Capital Gains (LTCG) exemption available under the Income Tax Act, 1961. The law adopts a strict, time-bound approach, and courts have consistently emphasised compliance with statutory timelines. This article examines the statutory framework , constitutional principles , and judicial precedents governing LTCG exemptions in cases involving under-construction residential properties. Statutory Framework Governing Capital Gains Exemption Section 54 of the Income Tax Act, 1961 Section 54 provides exemption from long-term capital gains arising from the sale of a residential house property , subject to reinvestment in another residential house. Key statutory conditions: The assessee must purchase: A residential house within ...