Selling real estate often raises questions about how to legally save on long-term capital gains tax. A common query is whether the profits from selling two separate residential units can be combined to purchase one new house while still qualifying for the Section 54 exemption under the Income Tax Act.
The Case in Focus
In one instance, a taxpayer built a stilt plus four-storey residential building and later sold two floors to different buyers. The proceeds from both sales were deposited into separate Capital Gains Accounts in a public sector bank.
The question arose — can these combined funds be used to buy a single residential property without losing the Section 54 benefit?
What the Law Says
Section 54 of the Income Tax Act, 1961, provides relief from long-term capital gains tax if:
- The seller is an individual or HUF,
- The original asset is a residential house, and
- The proceeds are reinvested in another residential property in India.
The timelines are as follows:
- Purchase: within 1 year before or 2 years after the sale.
- Construction: within 3 years after the sale.
A special provision also allows investing the gains from one property (up to ₹2 crore) into two new houses, though this benefit can be used only once in a lifetime.
Expert Opinion
Tax experts clarify that the law does not prohibit combining gains from more than one sale, as long as the conditions of Section 54 are met.
According to Moneycontrol’s Ask Wallet Wise, since both sold units were residential and the gains were deposited in Capital Gains Accounts, the taxpayer is eligible to combine both amounts to purchase a single new home and still claim full exemption.
Final Verdict
Yes, capital gains from the sale of two different residential floors can be merged and invested in one new property to claim Section 54 exemption, provided:
- Both sold assets were residential,
- The investment is made within the allowed time frame, and
- The new house is purchased or constructed in India.
