An individual can claim exemption under section 54 by investing long-term capital gains from one residential house into TWO residential houses in India only when:
AThe two houses are located in different Indian states
BThe total investment stays within Rs 10 crore overall
CBoth houses are purchased within one year of transfer
DGains are at most Rs 2 crore and the option is unused
Answer & Solution
Correct answer: D. Gains are at most Rs 2 crore and the option is unused
1. Section 54 ordinarily allows reinvestment in one residential house in India.
2. Where the capital gains do not exceed Rs 2 crore, the assessee may instead buy or construct two residential houses in India.
3. This two-house option can be exercised only once in a lifetime — once used, it is never available again even if a later year's gains are within Rs 2 crore.
4. Option B confuses the separate Rs 10 crore cap on the deemed cost of the new asset with the two-house condition; that cap applies to every section 54 claim, not just the two-house case.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 68_
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