Following Conditions should be satisfied â€“
1. The house property is a residential house whose income is taxable under the head â€œIncome from house propertyâ€ and transferred by an individual or a Hindu undivided family;
2. The house property (maybe self-occupied or let out) is a long term capital asset (i.e.,, it must be held for a period of more than 36 months before sale or transfer);
3. The assessee has purchased a residential house within a period of one year before the transfer (or within 2 years after the date of transfer) or has constructed a residential house property within a period of three years after the date of transfer. In the case of compulsory acquisition, the above limit of 1-year, 2-year and 3-year is applicable from the date of receipt of compensation (whether original or additional).
The following points should also be kept in view:
â€¢ Construction of the house should be completed within three years from the date of transfer. Date of commencement of construction is irrelevant. Construction may be commenced even before the transfer of the house.
â€¢ Case of allotment of a flat under the self financing scheme of DDA (or similar schemes of co-operative societies and other institutions) is treated as construction of house for this purpose.
â€¢ If the whole of the consideration is paid and possession of the house is obtained, the exemption contemplated u/s 54 is clearly attracted. If the substantial amount is paid in terms of purchase agreement within the stipulated period, the exemption u/s 54 is available even if the possession is handed over after the stipulated period.
â€¢ Nowhere it has been mentioned in section 54 that the same funds must be utilized for the purchase of another residential house; requirement of law is that the assessee should purchase a residential house within the specific period and the source of fund is quite irrelevant.
4. The house property so purchased or constructed has not been transferred within a period of three years from the date of purchase or construction.