🏡 Can Owning Multiple Floors Cost You a Capital Gains Exemption?

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Section 54F Simplified with Real-Life Tax Insights.
A crisp and clear explainer on how Section 54F works—especially when it comes to multi-floor homes.

Q1. What is the main purpose of Section 54F of the Income Tax Act?
Section 54F is designed to reward taxpayers who reinvest their long-term capital gains into residential property. If you sell a long-term asset (like land, shares, or gold) and buy or build a residential house, the capital gain can be fully or partially exempted from tax.
Real-world benefit: Suppose Mr. Rao sells ancestral land and earns a ₹40 lakh capital gain. If he uses the full sale proceeds to buy a new house within the allowed time, he pays zero tax on the capital gain.

Q2. What are the key conditions to claim this 54F exemption?
To get the tax benefit, you need to tick a few crucial boxes:
1. Time-bound investment:
Buy a residential house within 1 year before or 2 years after the asset sale.
Construct within 3 years of sale.
2. Property count condition:
On the sale date, you must not own more than one other residential house, excluding the new one.
3. Full investment rule:
The entire sale consideration should be invested.
If not, the exemption is proportionate:
Exemption Formula:
(Amount Invested ÷ Net Sale Consideration) × Capital Gain
Example: You sell shares for ₹60 lakh with a capital gain of ₹20 lakh but invest only ₹30 lakh in a house. Your exemption will be:
₹20L × (₹30L ÷ ₹60L) = ₹10 lakh exemption

Q3. Why was there confusion about owning multiple floors?

Many tax officers viewed each floor of a house as separate residential units. So if a taxpayer owned multiple floors—say, Ground + First + Second—they argued this breached the “own only one other house” condition and denied the exemption.
Impact: This technical interpretation risked disqualifying homeowners who lived in vertically built-up homes.

Q4. How did the Delhi High Court settle this matter?
The Court ruled clearly and sensibly:
> “Different floors in a single building, sharing the same address and usable as one unit, are not multiple houses.”
This means that as long as your property:
Is structurally one building
Has a single municipal number
Is used as one cohesive residence
you’re good to go under Section 54F.

Q5. Practical example
Mr. Sharma owns Ground + First + Second floor in a Pune bungalow. His family lives across all three floors. Despite separate floors, it’s one residential house.
➡️ When he sells a plot and reinvests in another house, he still qualifies for 54F benefits.

Q6. What if the taxpayer owns floors in different buildings?
That’s where the line is drawn.
Floor 1 in Building A + Floor 2 in Building B = Two separate houses.
Owning more than one distinct residential property disqualifies you from Section 54F.

Q7. Can co-owners claim Section 54F benefits?
Yes! Co-ownership doesn’t block the benefit—just split the investment.
Example:
Mr. A has ₹40 lakh gains
Mrs. A has ₹20 lakh gains
They jointly buy a ₹60 lakh house
Each gets exemption up to their share.
Key Takeaways for Taxpayers & Professionals
✅ Multiple floors in one house = treated as one unit
✅ Property title, address, and utility should show single residential use
✅ Invest full sale proceeds for full exemption
✅ Co-owners can each claim proportionate exemptions
Bottom Line
The Delhi High Court ruling brings clarity and fairness. In India’s evolving real estate landscape—where vertical homes are common—this judgment helps align tax law with reality. If you’re selling a long-term asset and planning to buy or build your dream home, Section 54F can be a powerful tax-saving tool—provided you use it correctly.

💬 Need clarity on capital gains and exemptions?
📞 Call CA Bhavesh Panpaliya at 8888755557 for personalised tax planning.

FAQs

1. Can I claim Section 54F if I own two flats in the same building?
Yes, if both flats are combined and used as a single residence with one municipal number.
2. Does land count as a “house” under Section 54F rules?
No, land is not considered a residential house for the property count condition.
3. Can I invest in an under-construction property for exemption?
Yes, but it must be completed within 3 years from the sale date.
4. What happens if I sell the new property within 3 years?
The exemption claimed earlier will be reversed and taxed in the year of sale.