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What will be the long-term capital gain (LTCG) tax if proceeds from the sales of  property and any inherited gold  is used to buy another property ? 

— Name withheld on request


We understand that you have earned long-term capital gains (LTCG) from the sale of the residential house property and inherited gold and intend to invest the sale proceeds in another residential house property to claim a deduction against the LTCG. 

Section 54 of the Income Tax Act of 1961 provides for exemption against the LTCG arising from the sale of a residential house (original asset). This exemption is available where the amount of LTCG arising from such sale is either invested to purchase another residential house (new house) within 1 year prior to or 2 years of the transfer of the original asset or the same is invested to construct a new house within 3 years of the transfer of original asset. The exemption will be available to the extent of LTCG invested.

a. Section 54F of the Act, provides for exemption against the LTCG arising from the sale of a capital asset other than a residential house (being gold in your case). This exemption is available only when the net proceeds arising on account of the sale of a capital asset (i.e. gold) are invested to purchase a residential house (new house) within 1 year before or 2 years after the sale of gold or the net proceeds are invested to construct a residential house property within 3 years from the date of sale of gold. The person claiming the above exemption should not hold more than one house (other than the new house) on the date of sale of the original asset. Where the entire net sale proceeds are not invested and only a part is invested, the exemption u/s 54F will be available only on a proportionate basis.

Income tax provisions do not place any restriction that the LTCG from sale of property and sale proceeds from any other capital asset (being gold in instant case) cannot be invested in the same residential house for the purpose of claiming the deduction under the Act. This is also supported by judicial precedents. Thus, you may invest the funds received from sale of property and gold to purchase the new residential property

LTCG from the sale of house and gold will be tax exempt, subject to fulfillment of all other conditions prescribed. Any GST/ indirect implications on such transfer should be examined separately.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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