Want to buy a house by redeeming mutual fund investments? Income tax rules explained

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I am planning to buy a residential flat by investing the redemption proceeds of my mutual funds investment. Will I be able to claim capital gain exemption if I reinvest the redemption proceeds for buying the second residential flat as I already have one residential house in my name? What is the time period of investment in residential property from date of mutual fund redemption? Can I claim this exemption again if I had already claimed exemption earlier for buying the first house?

Answer: Section 54F of Income Tax Act, allow an individual and an HUF to claim exemption from long term capital gains arising from sale of an asset other than a residential house if the net sale consideration received on sale of such asset is invested to buy a residential house property within specified time period subject to fulfilment of certain conditions. This exemption can only be claimed if the you do not own more than one house on the date of sale of the assets.

Since you only have one house other than the one being planned to save capital gains tax, you are eligible to claim exemption under Section 54F if you invest the redemption proceeds of your mutual fund investments to buy the second house. I presume that all your investments in mutual funds have become long term. 

The sale consideration has to be invested to buy a residential house within two years from sale of the mutual fund investments. You can also self-construct a residential house or book an under construction property and get the construction completed or possession within three years from the date of sale of your mutual fund investments. Amount remaining unutilised by  31st July, of the next financial year  i.e. the due date of filing of your ITR has to be deposited in capital gains account scheme on or before this date. 

Yes. you can claim this exemption for second house even if you have already claimed similar exemption earlier.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on twitter.

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