School teacher denied ₹2.5 crore Section 54 tax exemption for owning multiple properties, wins at ITAT; here's how

The ITAT order is relevant for homebuyers who have built up more than one house over the years.

The order, pronounced on September 8, 2026, came in the case of Pushpa Aggarwal, a school teacher from Saraswati Vihar in Delhi, where the tribunal upheld her exemption claim of ₹2,52,32,567.

The dispute goes back to Assessment Year 2017-18. Aggarwal sold her residential property for a total consideration of ₹3,36,60,000 and invested the amount in a new house within the stipulated time. As she owned more than one residential house, apart from the new property, on the date of transfer, the assessing officer (AO) rejected her exemption claim while completing the assessment under Section 143(3) on December 25, 2019. The AO applied the first proviso to Section 54F of the Act to deny the exemption.

Aggarwal appealed against the AO's order, and the Commissioner of Income-tax (Appeals) at the National Faceless Appeal Centre, Delhi, deleted the addition on May 29, 2025. The Revenue then challenged that decision before the ITAT.

At the heart of the case lied the difference between two exemption provisions.

• Section 54 exempts capital gains when a residential house is sold and the proceeds go into buying or constructing another residential house.

• Section 54F, which covers cases where the asset sold is not a residential house, carries an extra rider: the taxpayer must not own more than one residential house on the date of transfer.

The CIT(A) held that the Section 54F rider cannot be read into Section 54.

"The condition that one should not own more than one residential house at the time of sale of the original asset is not spelt out anywhere in section 54; the same is specifically spelt out in section 54F of the Act," the CIT(A) observed. It added that "the Parliament, in its wisdom has made this enactment and no subsequent amendments have been made to Incorporate the condition in section 54".

The first appellate authority also noted that since the transferred asset was a residential house, "the applicable provision is section 54 of the Act and section 54F of the Act has no application. As such, the disallowance made by the AO in the spirit of section 54F cannot sustain.".

What the tribunal said

The Tribunal noted "it is not the case of the revenue that the conditions available under Section 54 of the Act has not been satisfied". The claim was rejected only because Aggarwal owned more than one residential property.

Finding the CIT(A)'s view "just and proper so as not to warrant interference," the ITAT dismissed the Revenue's appeal..

The CIT(A) order in the case also flagged some guardrails home sellers should know

From April 1, 2023, Section 54-54F exemptions are capped at Rs. 10 crore, and from Assessment Year 2020-21, a taxpayer can invest in two residential houses if the capital gain does not exceed Rs. 2 crore, once in a lifetime.

For most home sellers, the takeaway from this case that if you are selling a residential house and buying a new one, the fact that you own other houses cannot, by itself, take away your Section 54 exemption.