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I am pensioner and filing ITR 1 regularly.  In the FY 2020-21, I have sold a residential plot which was purchased in 2002. I bought a residential flat by investing the money received on sale of the plot and by adding some more money from my savings. I understand I do not have any tax liability for the profits on sale of plot of land in view of reinvestment in the residential house. Is my understanding of the law correct or are there any more conditions to be satisfied to claim this exemption?  Also advise how to disclosre it in the ITR and which ITR to file? 

Though the capital gains on sale of plot of land are not taxable in view of the exemption available under Section 54F, you cannot file your ITR 1 as the exempt income exceeds threshold of five thousand rupees. So you will have to file ITR 2. 

Before you treat the capital gains on sale of plot of land as exempt under Section 54F, let me point out to that you have to satisfy certain conditions before you can claim the exemption under Section 54F.

It seems you have made the investments in the residential house within the same year so one condition is satisfied. However, you can claim the exemption under Section 54F on sale of any asset other than a residential house if and only if you did not own more than one house (other than the one being purchased by you) on the date of sale of the plot of land. So in case you had more than one house on the date of sale of this plot of land, you are not entitled to claim the exemption under Section 54F. Even if you owned a residential house jointly with others the same has to be treated as ownership of one house for the purpose of section 54F.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.

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