Whether exemption available on sale of depreciable long-term capital asset under Income Tax

Jun 09, 2025

WHAT IS SECTION 54F?

When a Section 54F of the Income Tax Act allows taxpayers to claim exemption from capital gains tax if the proceeds from the sale of a long-term capital asset are reinvested in specified assets, such as residential property.
If Depreciable asset is sold, the gains are subject to taxation under Section 50, which calculates capital gains based on the depreciation previously claimed.

Assessee is an Individual or HUF
Capital Gain arises from the Sale of any capital asset other than Residential House
Time limit of Purchase or Construction: Purchase should be made within 1 year before or 2 years after the date of transfer; Construction should be complete within 3 years from date of transfer

As of April 1, 2024, the relief available under Section 54F has been updated as follows:

The maximum deduction under Section 54F is capped at Rs. 10 crores. This means that if the capital gains exceed Rs. 10 crores, the excess amount will be taxable.
The holding period for all listed securities is now 12 months. All listed securities with a holding period exceeding 12 months are considered Long-Term.
The holding period for all other assets is 24 months.

The asset sold must qualify as a long-term capital asset (held for more than 36 months).
The sale proceeds must be reinvested in a residential property.
Threshold for Investment: The entire capital gains amount must be invested in the new property to claim full exemption. If only a portion is reinvested, the exemption will be proportionately reduced.
The reinvestment must occur within specified timeframes.
One year before or two years after the date of transfer of the asset.
The taxpayer should not own more than one residential property on the date of transfer to qualify

Basis	Before ITAT Ruling	After ITAT Ruling
Applicability of Section 54F	Only to non-depreciable long-term capital assets.	To all long-term capital assets, including depreciable assets taxable under Section 50
Eligibility of Depreciable Assets	Not eligible for exemption under Section 54	Eligible for exemption under Section 54F
Conditions for Claiming Exemption	Conditions applicable only to non-depreciable asset	Conditions applicable to all long-term capital assets, including depreciable assets
Calculation of Exempt Capital Gains	Calculation applicable only to non-depreciable assets	Calculation applicable to all long-term capital assets, including depreciable assets, subject to a maximum of Rs. 10 crores
Scope of Exemption	Limited to Non-depreciable long-term capital assets	Expanded to include all long-term capital assets, including depreciable assets taxable under Section 50