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Mihir

Mihir Tanna  |1066 Answers  |Ask -

Tax Expert - Answered on May 23, 2023

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more
Asked by Anonymous - May 23, 2023Hindi
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Hi Mr Mihir, I have in all four properties (inherited and purchased) which I am holding in the following manner – two of them 100% owned (one residence in which I am living & one shop), one 50% owned (residence) and one 25% owned (residence). Except for the one property in which I live, rest all are let out on rent and my co-owner in all the jointly owned properties is my sister. I am planning to sell the commercial property and purchase a residential property for better rent prospects. I want to know: Do I have to sell of all other residential properties as well (except the 100% owned residence where I live) to get the benefit of 54F while buying the new residential property (because then I won't have any other residential property except the one in which I live) OR Can I get the benefit of 54F by selling only the one commercial property and using the entire proceeds to buy the new residential property to be let out on rent (which means I will continue to hold 50% and 25% ownership of two other residential properties, as the second holder in both the cases). Also, in case you say that I must compulsorily sell all the jointly owned residential properties as well to get the benefit of 54F while buying the new residential property so that I have only ONE residential property when I go to buy the new residential property – will I get the benefit under 54F if I sell multiple properties and buy one single residential property which matches the amount of capital gain + sale proceeds of the commercial property? I also wanted to know that I may have to take a home loan while buying the new residential property (to be let out on rent), therefore, what would be the amount which I will be allowed as deduction from my total income as I have an existing home loan since 9 years on the 100% owned residential property in which I am living. I have always been a salaried class person with income under Rs 50 lakh and ALL the above-mentioned properties, related incomes and home loan etc are already disclosed in my IT returns. – SB

Ans: To get the benefit of Sec 54F, person should not own more than one house property on the date of transfer of asset and not on the date of acquiring new residential property.

Further, with reference to buying a single house property against capital gain from multiple long term capital asset, in my view, Sec 54F benefit is available if sale proceeds from all long term capital asset is invested in buying a single house property. However, it can be subject to litigation.

With reference to deduction on housing loan, principal repayment deduction upto 1.5 lacs in overall limit of 80C , 2 lacs deduction on interest on self occupied house property and entire interest deduction on loan for rented house property will be allowed. However, loss from house property can be set off upto 2 lacs against other income subject to other specified conditions
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 09, 2024

Asked by Anonymous - Jun 08, 2024Hindi
Money
I have purchased a under construction property in Aug2021 and possession is in 2024 dec. I have sold my existing house in jan'24 and investing the full amount in the new flat can i get benifits under section 54f
Ans: Understanding Section 54F of the Income Tax Act
Thank you for sharing your query. Section 54F of the Income Tax Act, 1961, provides tax relief on long-term capital gains arising from the sale of any capital asset other than a residential house, provided the net sale consideration is reinvested in purchasing or constructing a residential house. This section aims to encourage investment in residential properties by providing tax exemptions on capital gains.

Eligibility Criteria for Section 54F
To avail the benefits under Section 54F, certain conditions must be met:

Long-Term Capital Gain: The asset sold should be a long-term capital asset.
Investment in Residential Property: The net consideration from the sale should be invested in purchasing or constructing a residential property within the specified period.
Single Residential Property: The taxpayer should not own more than one residential house property, other than the new house, on the date of transfer.
Time Frame for Investment:
Purchase: Within one year before or two years after the date of transfer.
Construction: Within three years from the date of transfer.
Your Scenario: Selling and Reinvesting in a New Property
You sold your existing house in January 2024 and plan to invest the entire amount in an under-construction property, with possession due in December 2024. Let’s evaluate how you can benefit under Section 54F.

Timeline of Events
Purchase of Under-Construction Property: August 2021
Sale of Existing House: January 2024
Possession of New Property: December 2024
Meeting the Conditions for Section 54F
Long-Term Capital Gain
Assuming the property sold in January 2024 was held for more than 24 months, the gain qualifies as a long-term capital gain, making you eligible for Section 54F benefits.

Investment in Residential Property
You plan to invest the entire sale proceeds in a new property purchased in August 2021. This new property is under construction, with possession due in December 2024. Here, the critical aspect is the timing of your investment and possession.

Assessing the Time Frame for Investment
According to Section 54F, the construction of the new property should be completed within three years from the date of sale of the original property. Since you sold your house in January 2024, the construction of your new house should be completed by January 2027. Since possession of your new house is expected in December 2024, it falls well within the stipulated three-year period, making you eligible for the exemption under Section 54F.

Calculation of Exemption
The amount of exemption under Section 54F is proportional to the investment made. If the entire sale consideration is invested, the entire capital gain is exempt. If only a part of the consideration is invested, the exemption is calculated proportionately.

Example Calculation
Let’s assume the following figures for clarity:

Sale Consideration of Existing House: Rs 50 lakhs
Cost of Under-Construction Property: Rs 60 lakhs
Capital Gain from Sale: Rs 20 lakhs
Since you are investing the full sale consideration of Rs 50 lakhs in the new property, the entire capital gain of Rs 20 lakhs is exempt under Section 54F.

Documentation and Compliance
To ensure smooth claiming of the exemption under Section 54F, maintain proper documentation, including:

Sale Deed of the Existing Property: Documenting the sale transaction.
Agreement to Sell and Purchase of New Property: Showing the reinvestment of the sale proceeds.
Proof of Construction/Completion: Possession certificate or completion certificate from the builder, indicating the date of possession.
Additional Points to Consider
Holding Period
To retain the benefits of Section 54F, the new property must be held for at least three years from the date of its acquisition or construction. If sold within this period, the capital gains exempted earlier will become taxable in the year of sale.

Multiple Properties
Ensure you do not own more than one residential property, other than the new house, on the date of transfer of the original asset. Owning multiple residential properties can disqualify you from availing the exemption under Section 54F.

Importance of Certified Financial Planner (CFP) Guidance
Navigating tax laws can be complex, and professional guidance ensures compliance and optimal tax savings. A Certified Financial Planner (CFP) can help you strategically plan your investments, ensuring maximum benefits under applicable tax laws while aligning with your long-term financial goals.

Strategic Investment Planning
While real estate investment offers tax benefits, diversifying your portfolio is crucial for balanced growth. Alongside property investments, consider the following:

Equity and Mutual Funds
Equity and mutual funds offer high growth potential, beating inflation over the long term. Actively managed funds, guided by a CFP, can provide superior returns compared to index funds due to strategic stock selection and management.

Public Provident Fund (PPF)
PPF is a risk-free investment with tax benefits under Section 80C. Regular contributions to PPF provide a stable corpus for long-term goals.

Systematic Investment Plan (SIP)
Investing in mutual funds through SIP ensures disciplined investing and benefits from rupee cost averaging, mitigating market volatility.

Evaluating Direct vs. Regular Funds
While direct funds have lower expense ratios, the expertise of a CFP in regular funds can enhance overall returns through strategic asset allocation and periodic rebalancing. This professional guidance often outweighs the cost advantage of direct funds.

Ensuring Adequate Insurance
Adequate health and life insurance coverage is crucial. It protects your family and investments from unforeseen events, ensuring financial stability.

Emergency Fund
Maintain an emergency fund covering 6-12 months of living expenses. This ensures liquidity and financial security in case of unexpected expenses or income disruptions.

Tax Planning and Compliance
Efficient tax planning enhances net returns. Utilize available tax-saving instruments and ensure compliance with tax laws to avoid penalties and maximize savings.

Final Insights
Your strategic approach to reinvesting the sale proceeds from your existing property into a new under-construction property aligns well with the provisions of Section 54F. This allows you to benefit from significant tax exemptions on long-term capital gains, ensuring compliance with the stipulated conditions.

Maintaining proper documentation, adhering to holding periods, and leveraging professional guidance from a Certified Financial Planner ensures optimal financial planning and tax efficiency. Diversifying your investments, maintaining adequate insurance, and having an emergency fund further strengthen your financial foundation.

Your commitment to informed financial decisions sets a strong foundation for achieving your long-term financial goals, ensuring a secure and prosperous future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

T S Khurana

T S Khurana   |492 Answers  |Ask -

Tax Expert - Answered on Aug 31, 2024

Latest Questions
Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 15, 2025

Money
Hi Sir, I am 32 years old, married and have a 4 month old daughter. I am working in a defense based private company. I earn 53K in hand. My monthly expenses come to around 20K. I have just started investing in mutual funds and doing a SIP of Rs.8000 per month. I have invested around 1.5 lakhs across multiple funds by now. I also have around 1.2lakhs in my EPFO account. I have saved 20K per month for my daughter for the past year which totals around 2 lakhs right now which I want to invest in her name for the long term. Besides these, I do not own any assets or have any liabilities as of now. Please suggest where to invest the amount I have saved for my daughter for best returns. And also please suggest how to plan for my retirement considering similar monthly expenditure with addition of daughters education and marriage.
Ans: You are in a very important phase of life. At 32, with a young child and a steady income, you have made a solid beginning. Your habit of saving and investing early will give you a big edge. Your family is depending on you, and your discipline will secure their future.

Let’s look at everything in a structured and simple way.

? Understanding Your Current Financial Situation

– Your income is Rs.53000 in hand.
– You spend Rs.20000 monthly.
– You save and invest the rest, which is very good.
– You already do SIP of Rs.8000 per month.
– You have Rs.1.5 lakhs in mutual funds.
– You have Rs.1.2 lakhs in EPFO.
– You have Rs.2 lakhs saved for your daughter.
– You have no loans.
– You have no assets like house or gold.

This is a healthy start. You are already spending only 40% of your income. That gives room to build wealth. Now, let us look at what to do next.

? Investing Your Daughter’s Rs.2 Lakhs: Long-Term View

This is for your daughter’s future. Likely uses could be higher education or marriage. Both are long-term goals.

– She is only 4 months now.
– You have 15 to 20 years time.
– This gives scope for growth-based investing.

Here’s what you can do:

– Invest this Rs.2 lakhs in 2 or 3 equity mutual funds.
– Choose actively managed funds for better long-term returns.
– Avoid index funds. They only copy the market and don’t beat inflation.
– Actively managed funds have expert fund managers.
– They adjust based on market opportunities.
– Over 15 years, they usually outperform index funds.

Also,

– Use Regular Plans through a CFP-backed Mutual Fund Distributor.
– Avoid Direct Plans unless you can manage and review investments on your own.
– Direct plans don’t provide support, review, or portfolio balancing.
– Regular Plans through a Certified Financial Planner help you stay disciplined.
– A qualified planner monitors the market and guides rebalancing.
– You avoid costly emotional mistakes.

Strategy for daughter’s funds:

– Divide Rs.2 lakhs across 2 or 3 good equity mutual funds.
– Stay invested for 15 years minimum.
– Do not withdraw in between.
– Review yearly with help of Certified Financial Planner.
– This can grow into a good education or marriage corpus.

Also, since you are already saving Rs.20000 every month for her, keep it up.
Even Rs.5000 or Rs.10000 monthly in SIP for her will make a big difference over time.

? Planning Your Retirement: Long-Term but Needs Focus

Retirement planning should start now. You have time, but the earlier, the better.

– You are 32 now.
– You can aim to retire at 60.
– That gives you 28 years to save.
– But inflation reduces the value of money.
– So Rs.20000 expenses today will grow a lot by retirement.

You need to plan for:

– Your own expenses after retirement
– Your wife’s needs
– Medical costs in old age
– Travel and emergencies
– No income after retirement

What you should do:

– Increase your SIP gradually as income rises.
– Right now, you invest Rs.8000 in mutual funds.
– Increase it by Rs.1000 every year.
– Also start a new SIP only for retirement.
– Separate from daughter’s goal.

Why equity mutual funds help:

– Equity mutual funds beat inflation over long term.
– They build wealth over 20+ years.
– Don’t choose debt mutual funds for retirement goals.
– Debt funds give stable returns but low growth.
– They are good for short-term goals.

Continue EPFO contribution:

– EPFO is a good long-term tool.
– It gives safe and tax-free corpus at retirement.
– Don’t withdraw EPF for other uses.
– Let it grow till retirement.

? Tracking Your Monthly Budget and Investing Discipline

Your expenses are only Rs.20000.
You save nearly Rs.30000 each month.
This gives you enough to grow wealth for all goals.

– Continue SIP of Rs.8000 or increase it.
– Start SIP of Rs.5000 for daughter.
– Start SIP of Rs.5000 for retirement.
– Keep Rs.5000 to Rs.7000 for emergency savings.
– Maintain Rs.1 lakh as emergency fund.
– Park it in liquid fund or FD for easy access.

This way:

– You cover child’s needs.
– You build retirement wealth.
– You stay ready for emergencies.

? Life Insurance and Health Insurance: Non-Investment but Vital

These are not investments. But they are must-haves.
They protect your family and finances from sudden shocks.

– Buy a term insurance of Rs.50 lakhs to Rs.1 crore.
– Choose only pure term insurance.
– Do not take ULIPs or endowment policies.
– They give low returns and high costs.
– If you already have such products, you may consider surrendering.
– Reinvest that amount in mutual funds.

– Also buy family floater health insurance.
– You, your wife and daughter should be covered.
– Minimum Rs.5 lakhs coverage.
– Health costs rise every year.

? Education and Marriage Planning for Daughter

These are big goals. But they are long-term, so time is your friend.

Education Planning:

– Higher education needs large funds.
– Start a separate SIP of Rs.5000 per month.
– Use equity mutual funds.
– Review every year and increase SIP.
– Don’t touch this investment for any other need.

Marriage Planning:

– This is 20+ years away.
– You can use lumpsum investments here.
– The Rs.2 lakhs you saved can be for this.
– Also, build this goal slowly after education fund is stable.

Do not mix marriage and education planning.
Treat them as two different goals.

? Building Assets for Financial Stability

You currently do not have any physical assets. That’s not a problem.

Focus on building financial assets.

– Mutual funds are liquid and can grow well.
– EPFO adds stability and long-term safety.
– Emergency fund ensures peace of mind.
– Term insurance covers family needs.
– Health insurance protects savings.

Stick to these. Do not get distracted by gold or real estate.

Real estate has low liquidity and high maintenance.
Also, resale or rental is not easy and returns are uncertain.

? Why You Should Avoid Index Funds

Index funds may look cheap. But they have limitations.

– They only copy the market index like Nifty.
– They don’t outperform the market.
– In falling markets, they fall fully.
– No active fund manager to manage risk.
– Inflation can beat index fund returns.

On the other hand:

– Actively managed funds have experienced managers.
– They reduce exposure to weak sectors.
– They increase exposure to strong sectors.
– Over long term, they create better value.

Always go with active mutual funds through a CFP-led advisor.
They help you rebalance and stay on track.

? Why Direct Mutual Funds Are Not Ideal

Direct funds have low expense ratio. But they lack guidance.

– No help with fund selection.
– No review or rebalancing support.
– No risk profiling.
– No hand-holding during market falls.

Investors often panic or stay emotional.
This hurts long-term returns.

On the other hand:

– Regular plans give guidance.
– Through Certified Financial Planner, you get yearly reviews.
– You get portfolio alignment based on goals.
– Mistakes are avoided.

The slightly higher cost is worth the value it brings.
Long-term discipline beats small cost difference.

? What To Review Every Year

Every year, review these points:

– SIP amount and growth
– Fund performance
– Daughter’s goal progress
– Retirement corpus projection
– Changes in income or expenses
– New responsibilities or medical needs
– Emergency fund adequacy

Your planner can guide this review well.
This ensures all your goals stay on track.

? Finally

You are doing very well for your stage in life.

– You have no loans.
– You are disciplined in savings.
– You are planning for your daughter.
– You are thinking of retirement.

This mindset will help you build wealth peacefully.

Follow these steps:

– Stay invested for long term.
– Don’t chase returns.
– Review yearly.
– Invest goal-wise.
– Increase SIPs as income grows.
– Avoid distractions like gold and real estate.
– Avoid mixing insurance and investment.
– Take professional help where needed.

With this, you can confidently build your financial future.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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