Land sale tax rule: Section 54F, 54EC and reinvestment choices

If my father sells a plot of land bought in 2005, will LTCG apply if he reinvests in a shop or gifts me the proceeds to buy a house?

- Mahesh Nayak

-Name withheld on requestLong-term capital gains on the sale of land will be taxable unless reinvested in a residential unit or capital gains bonds. No exemption is available if sale proceeds are used to buy a commercial shop. Exemption under section 54F is available only if the sale proceeds from the sale of the long-term capital asset are reinvested in a residential property. Further, the exemption is available only if he owns not more than one residential house on the date of sale of the land.

Section 54F requires the assessee to buy or construct a new house from the proceeds from of land. So, if your father gifts the proceeds to you and you buy a residential unit, the exemption won't be available as the capital gains accrue to him and he is not acquiring the residential house.