Section 54F(4) of the Income Tax Act

The exemption under Section 54F (or Section 54) for long-term capital gains cannot be denied if the assessee invests the entire sale consideration in constructing a residential house within the prescribed three-year period, even if the amount was not deposited in the Capital Gains Account Scheme before the due date for filing the income tax return under Section 139(1). The purpose of the Capital Gains Account Scheme is to preserve the exemption when actual investment is pending, not to deny it if actual utilization occurs within the statutory timeframe.

An assessee is not entitled to the full deduction under section 54F if the capital gains were not utilized for the construction of a new house or deposited in the specified bank accounts before filing the return of income. In such cases, the exemption is restricted proportionately to the amount invested.