Exemption Requirements u/s 54 & 54F:

To claim this exemption, the new house has to be purchased or constructed by the taxpayer to be eligible for this exemption. In case of purchase, the purchase date should be within one year before, or two years after the date of transfer of the title of the original house. If the taxpayer intends to construct the new house, he should complete the construction within three years of the date of transfer of the title of the original house.

A lot of litigations arose with regard to the claim of benefits under sections 54/54F as the new house could not be purchased or constructed by the taxpayer within the given time for various reasons. Unfortunately, the Income-tax Act stipulates only completion of purchase or construction of the new house property and completely disregards the amount actually invested by the taxpayer in a new property.

In case where a person buys property from a developer, the project is considered to be complete only when it receives the occupancy certificate. But, when an individual constructs his own house, there are no such set benchmarks to ascertain the actual date of its completion. Often the exemption is disallowed on the grounds of not completing the purchase or construction within the stipulated time, despite the fact that the entire amount has been invested in the new house. Such delays are often due to the default in part of the builders in not delivering the project in time. Also there are times when the buyer could not find a suitable property to invest in.

On the contrary, on numerous occasions the Courts and Tribunals have taken a liberal view and allowed the tax benefits to the taxpayers for the money invested by them within the stipulated period of two or three years even though the purchase or construction of the property has not yet been completed.