Do you want to buy a house by cashing in investments in mutual funds? Income tax rules explained


I intend to purchase a condo by investing the redemption proceeds of my investment in mutual funds. Can I claim the capital gains exemption if I reinvest the redemption proceeds to buy the second home since I already own a home in my name? How long does the investment in residential real estate last from the date of mutual fund redemption? Can I claim this exemption again if I previously applied for the exemption to purchase the first home?

Answer: Section 54F of the Income Tax Act allows an individual and HUF to apply for exemption from long-term capital gains from the sale of an asset other than a home if the net selling price received on the sale of such an asset is invested in the purchase of a home property within a particular period subject to certain conditions being met. This exemption can only be claimed if you do not own more than one home at the time the assets are sold.

Because you only have one home other than the one you were planning to save on capital gains tax, you are eligible for Section 54F exemption if you invest the redemption proceeds of your mutual fund investments to buy the second home. I assume that all of your mutual fund investments have become long-term.

The selling price must be invested to buy a home within two years of the sale of the mutual fund investments. You can also build a home yourself or book a property under construction and receive construction or ownership within three years of the sale date of your mutual fund investments. The amount that remains unused by July 31st of the next financial year, which is the due date of filing your ITR, must be paid into the capital gains account on or before that date.

Yes. You can claim this exemption for the second home even if you have previously applied for a similar exemption.

Balwant Jain is a tax and investment professional and can be reached at [email protected] and @jainbalwant on Twitter.

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