Last reviewed: 25 September 2026. Sold a house, plot, gold or shares and facing a large capital gains bill? Sections 54, 54F and 54EC let you legally save or defer that tax by reinvesting, but each has different conditions, and getting them wrong (or missing the Capital Gains Account Scheme deadline) can cost you the entire exemption. This guide explains all three in full, with the reinvestment maths, timelines, the Rs 10 crore cap, the 3-year lock-in and worked examples.
At a glance
First, the tax you are trying to save
Long-term gains on land and buildings are taxed at 12.5% without indexation for transfers on or after 23 July 2024. For land or buildings acquired before 23 July 2024, a resident individual or HUF can instead pay 20% with indexation if that gives lower tax. Non-residents do not get this option.
| Plot bought FY 2010-11 for Rs 20 lakh, sold FY 2025-26 for Rs 1 crore | 12.5% without indexation | 20% with indexation |
|---|---|---|
| Cost used | Rs 20,00,000 | Rs 45,02,994 (20 lakh × 376 ÷ 167) |
| Long-term capital gain | Rs 80,00,000 | Rs 54,97,006 |
| Tax before cess and surcharge | Rs 10,00,000 | Rs 10,99,401 |
Here the 12.5% route is cheaper; for older or slower-appreciating property, indexation often wins. Either way, the exemptions below reduce the gain before the rate applies.
Section 54 - selling a residential house
If you sell a long-term residential house and reinvest the capital gain into another residential house in India, Section 54 exempts that gain. You need only reinvest the gain, not the whole sale value. Where the gain does not exceed Rs 2 crore, you may, once in your lifetime, buy two houses and claim exemption for both.
Section 54F - selling any other long-term asset
If you sell a long-term asset that is not a residential house (land, gold, shares, jewellery) and buy a residential house, Section 54F applies. Here you must reinvest the entire net sale consideration, not just the gain, and you must not own more than one other residential house on the date of sale. If you reinvest only part of the consideration, the exemption is proportionate.
The 54F proportion formula
Exemption = Capital Gain × (Amount invested in the new house ÷ Net sale consideration). This is why partial reinvestment gives only partial relief.
Side by side
| Condition | Section 54 | Section 54F |
|---|---|---|
| Asset sold | Residential house (long-term) | Any long-term asset except a house |
| Reinvest | The capital gain | The entire net sale consideration |
| Partial reinvestment | Exemption limited to amount reinvested | Proportionate exemption |
| Other-house ownership limit | No restriction | Not more than one other house |
| Exemption cap | Rs 10 crore | Rs 10 crore |
| Timeline | Buy within 2 years / construct within 3 years; 3-year lock-in | |
| Income-tax Act, 2025 (transfers from 1 April 2026) | Section 82 | Section 86 |
Worked examples
Section 54
You sell a house with a long-term gain of Rs 50 lakh and buy a new house for Rs 60 lakh. Since you reinvested more than the gain, the entire Rs 50 lakh is exempt.
Section 54F
You sell shares (a long-term non-house asset) for a net consideration of Rs 1 crore with a gain of Rs 40 lakh, and invest Rs 60 lakh in a house. Exemption = 40 lakh × (60 lakh ÷ 1 crore) = Rs 24 lakh; the remaining Rs 16 lakh gain is taxable.
Section 54EC
You sell a plot with a long-term gain of Rs 70 lakh and do not want another property. Within 6 months of the sale you invest the maximum Rs 50 lakh in 54EC bonds. Rs 50 lakh of the gain is exempt; the balance Rs 20 lakh is taxed at 12.5% = Rs 2,50,000 plus cess. The bonds are locked in for 5 years, and the interest on them is taxable.
Section 54EC - the bond route
For long-term gains on land or building, Section 54EC (section 85 of the 2025 Act for transfers from 1 April 2026) offers an alternative to buying a house: invest up to Rs 50 lakh in specified bonds, issued by NHAI, REC, PFC or IRFC, within 6 months of the sale, with a 5-year lock-in. It is useful when you do not want to buy property but still want to save the tax on part of the gain.
The Capital Gains Account Scheme deadline
If you have not reinvested by the due date for filing your return under section 139(1), deposit the unused amount in a Capital Gains Account Scheme account with a bank and use it to buy or build within the time limit. For most individuals filing ITR-2 that due date is 31 July; after the Finance Act, 2026 staggered the dates, 31 August applies to non-audit ITR-3 filers. A belated return deadline does not extend it. Miss this and the unutilised amount is taxed, a very common and avoidable slip.
Watch the 3-year lock-in
Under both 54 and 54F, if you sell the new house within 3 years, the earlier exemption is withdrawn and the gain becomes taxable in the year of that sale. Plan the lock-in before you commit the funds.
NRIs selling property in India
Non-residents can claim sections 54, 54F and 54EC on the same conditions, provided the new house is in India. The catch is cash flow: the buyer must deduct TDS on the payment to a non-resident (section 393(2) of the 2025 Act, old section 195, for sales from 1 April 2026) at rates that ignore the planned reinvestment. A lower-deduction certificate under section 395(1)(a) (old section 197) obtained before the sale can bring the deduction down to the tax actually expected. Our CA for NRIs service covers the full sale, repatriation and return.
Frequently asked questions
What is the basic difference between Section 54 and 54F?
Section 54 applies when you sell a residential house and reinvest the capital gain into another residential house. Section 54F applies when you sell any other long-term asset (land, shares, gold) and reinvest the net sale consideration into a residential house.
How much do I have to reinvest under each section?
Under Section 54 you only need to reinvest the capital gain to get full exemption. Under Section 54F you must reinvest the entire net sale consideration; if you reinvest only part, the exemption is proportionate.
How is the 54F exemption calculated if I reinvest only part?
Exemption = Capital Gain x (Amount invested in the new house / Net sale consideration). So if you invest 60% of the sale proceeds, roughly 60% of the gain is exempt and the rest is taxable.
Is there a maximum exemption?
Yes. From 1 April 2023, investment eligible for exemption under Section 54 and 54F is capped at Rs 10 crore.
What is the time limit to buy or construct the new house?
Buy within 2 years after the sale (or up to 1 year before it) or construct within 3 years of the sale. Amounts not used before the due date of the return under section 139(1) (31 July for most individuals filing ITR-2) must be parked in a Capital Gains Account Scheme deposit.
What is the Capital Gains Account Scheme (CGAS)?
It is a special deposit with an authorised bank where you park the unutilised gain/consideration before the section 139(1) due date for your return, then withdraw it to buy or build the house within the time limit. If unused within the limit, it becomes taxable.
Is there a lock-in on the new property?
Yes, 3 years. If you sell the new house within 3 years of purchase or construction, the exemption claimed earlier is withdrawn and becomes taxable in the year of that sale.
Does Section 54F have a house-ownership restriction?
Yes. You should not own more than one residential house (other than the new one) on the date of transfer, and you should not buy or build another house within the specified period, or the exemption can be denied or withdrawn.
Can I buy two houses under Section 54?
Once in a lifetime, if the capital gain does not exceed Rs 2 crore, you may invest in two residential houses and claim exemption for both.
What is Section 54EC and how is it different?
Section 54EC lets you save long-term gains from land or building by investing up to Rs 50 lakh in specified bonds (issued by NHAI, REC, PFC or IRFC) within 6 months, with a 5-year lock-in. It is an alternative to buying a house.
Does the new house have to be in India?
Yes. To claim exemption under Section 54 or 54F, the new residential house must be located in India.
What if I sell shares and want to buy a house - which section applies?
Section 54F, because shares are a long-term asset other than a house. You must reinvest the entire net sale consideration into one residential house in India and meet the ownership conditions.
We compute the exact exemption under 54/54F/54EC, structure the reinvestment and CGAS deposit, and file the return correctly.
Income Tax Filing Business ValuationTalk to CA Somesh Chandak & Associates - we will structure your reinvestment and exemption correctly.
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