Section 54F: Capital gains in case of investment in residential house

1. Section 54F of income tax act provides the following conditions to get exemption on sale of certain long-term capital assets:
• Assessee should be either an INDIVIDUAL or HUF
• The asset transferred should be a long-term capital asset other than a residential house property (Let us call it "original asset")
• The amount of net consideration^(#1) on sale of original asset should be invested into purchase / construction of ONE NEW RESIDENTIAL house (Let us call it "new house")
• New house can be purchased either 1 year before the date of sale or 2 years after the date of sale of original asset. In case where new residential house is being constructed, the construction should be completed within 3 years from the date of sale of original asset.
• New house purchased / constructed should not be located outside India.
• The assessee should not own more than one residential house, other than new house, on the date of transfer of original asset. 
• The income from new house, should not be chargeable under the head "Income from house property"
  
  
2. Exemption under section 54F will be calculated as under:
• Where Cost of New House >= Net Consideration of Original Asset:
• Exemption = 100% of the capital gains will be exempt
• Where Cost of New House < Net Consideration of Original Asset:
• Exemption = [(Cost of New House / Net Consideration of Original Asset) * Capital Gains on Original Asset]
• As amended by Finance Act, 2023, w.e.f. AY 2024-25:
• If the cost of new house > 10 crore rupees, the amount exceeding 10 crore rupees shall not be taken into account
• Hence the maximum exemption is now capped to Rs. 10 crore only
  
  
3. The  exemption given earlier u/s 54F will be withdrawn and deemed to be treated as LTCG income of the year in which the assessee:
• Purchases another residential house (other than the "new house") within 2 years from the date of transfer of original asset and whose income is chargeable under the head income from house property or
• Constructs another residential house (other than the "new house") within 3 years from the date of transfer of original asset and whose income is chargeable under the head income from house property
• Transfers the new house within 3 years from the date of purchase / construction of  that new house
  
  
4. Where the taxpayer intends to invest the capital gains in purchase / construction of new house, however could not do so, shall deposit the said amount into a Capital Gains Account Scheme of specified bank / institution on or before the due date of filing of return of income u/s 139(1) and claim the benefit of exemption u/s 54F:
• However the amount deposited in CGAS should be utilized for purchase / construction of new house within 2 years (in case of purchase) or 3 years (in case of construction) from the date of transfer of original asset 
• Where the amount deposited in CGAS cannot be utilized within above specified period, the amount of exempted capital gains in excess of actually allowable exemption will be taxed as capital gains of the assessee on expiry of 3 years from the date of transfer of original asset
• It is to note here that if the net consideration of original asset > 10 crore rupees, the amount exceeding 10 crore rupees shall not be taken into account

(#1) "Net Consideration", in relation to the transfer of a capital asset, means the full value of the sale consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.