January 27, 2026: Delays in under-construction projects can affect long-term capital gains (LTCG) exemptions for homebuyers reinvesting sale proceeds. Under Section 54 of the Income Tax Act, investors selling a property must complete the purchase of a new residential unit within three years to claim LTCG exemption. Exceeding this timeline, even for projects registered under RERA, can jeopardize tax benefits.
Kamal Mehta from Surat faced this scenario after selling his apartment and booking an under-construction flat. Although the project was RERA-registered, the scheduled completion extended beyond three years. To safeguard his exemption, Mehta split his gains—investing part in Section 54EC bonds issued by NHAI and parking the rest in a Capital Gains Account Scheme.
“When the capital gain is made and the assessee wishes to purchase a new flat, it is very important that the flat is likely to be completed within three years, and the agreement specifies this,” said Anil Harish, Partner, D.M. Harish & Co. Developers now must provide a completion date under RERA, but delays or extensions may still affect the investor’s eligibility. “If the developer is genuinely delayed and gets an extension, the assessee may argue the fault was not theirs and claim the exemption,” Harish added.
Investors anticipating delays can explore alternatives, such as Section 54EC bonds, offering exemption up to ₹50 lakh, or purchasing a ready-to-move-in property within two years while complying with the “one house” limit, advises Ritika Nayyar, Partner, Singhania & Co. Parking unutilized funds in the Capital Gains Account Scheme is critical to demonstrate intent to the tax authorities.
Proper documentation is essential, including registered sale deeds, possession letters, completion certificates, bank statements, and proof of utility or property tax payments. These records help establish compliance with the three-year timeline and safeguard LTCG exemptions.
Careful planning, awareness of project timelines, and exploring alternative strategies are vital for investors seeking to preserve tax benefits while navigating construction delays.
Source: Hindustan Times
