Exemption U/s 54F if builder does not complete within 3 years?

Q. We sold an old land long term asset and invested proceeds for the purchase and construction of a flat in Bangaluru, within an year of sale of asset and claimed exemption u/s 54 F of Income Tax Act, but the builder has not completed the construction within 3 years. As per the income tax law the period of 3 years has lapsed. The period of 3 years lapsed without any fault on our side. What is your suggestion on this matter?

Ans. The exemption u/s 54F is for those individuals or HUF who gets long term gains on transfer of any asset other than residential house and who uses all the sales consideration within a specified period for purchase or constructing a residential house. The specified period in case of house purchase is one year before or two years after the date of transfer of asset on which gains were made. In case of construction, section 54 F provides time limit of three years. Thus problem arises if the builder has not completed the house within three years. Will you get exemption or not?

The plain reading and strict application of the provision u/s 54F compel one to think that exemption is not allowable in case of delay beyond 3 years, higher judicial authorities have rescued taxpayers by giving relief in cases where there is bonafide investment for construction of house. Section 54F being relief provision, should be viewed in a bit of relaxed manner. Judicial decisions in this regard explain that exemption can be claimed even if construction is not completed within 3 years. However, remember in such cases the court was satisfied that either full amount or most of the amount of sales consideration were already utilised


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