Listen to this article in summarized format
These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.
Income Tax Guide
Income Tax Slabs FY 2025-26Income Tax Calculator 2025New Income Tax Bill 2025
I plan to redeem my mutual fund units to finance a house purchase in Pune. I also intend to sell a house I own in my village. Can I still claim long-term capital gains tax exemption?
Sudhir Kaushik Co-founder & CEO, TaxSpanner: If you redeem long-term mutual fund units to buy a house, relief is available under Section 54F as the asset sold is not a residential property. If you meet the Section 54F conditions—specifically, the one that specifies that on the date of mutual fund sale you should own only one residential house—you can claim LTCG exemption even if the house is not sold later. Eligibility is determined by the MF sale date, not by subsequent property sales. To claim exemption, invest the net sale proceeds in one residential house in India, purchased within a year before or two years after the MF sale, or constructed within three years. If the net consideration is fully invested, you will get full exemption. If not, it is proportionate. If unutilised by the return filing due date, deposit the balance in the Capital Gains Account Scheme (CGAS) before filing. Do not buy or construct another house in the next 2-3 years or the exemption may be withdrawn. When the village house is sold, the LTCG can be evaluated under Section 54. Even if you sell it within a year of buying the Pune house, you can claim exemption under Section 54, because it allows exemption when a new house is bought within a year before or two years after the sale of the old house, or constructed within three years.
Also read | I have Rs 30 lakh. Should I invest in land or buy mutual funds and REITs?
I purchased a property this year and hold mutual funds. Can I redeem mutual funds held for over a year to offset the long-term capital gains (LTCG) against the property purchase? Additionally, how can I partially redeem mutual funds to ensure that only units held for the long term are sold?
Shubham Agrawal Senior Taxation Adviser, TaxFile.in: Under Section 54F of the Income Tax Act, you can claim exemption on long-term capital gains from shares or mutual funds if the full sale proceeds are invested in a residential house—either within one year before or two years after the sale. Since you’ve already purchased the house, the sale must happen within a year after the purchase. To claim the exemption, you must invest the entire sale proceeds, not just the capital gains. For mutual funds, the holding period is determined on a FIFO (First-In, First-Out) basis—units held for more than a year before sale qualify as long-term. Choose a redemption date within one year of the house purchase, and sell only those units held for over a year. Your broker or fund house can provide purchase-date reports to help identify eligible units.
Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away. Email ID: etwealth@timesgroup.com
aniltikotekar4sme.com 