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Income Tax · Capital gainsSection 54 vs 54F: reinvestment exemptions explained
Selling a house, plot, shares or gold and buying a new home? Sections 54 and 54F can wipe out the capital gains tax – but the conditions differ. Here is a side-by-side comparison with worked examples, under the 1961 Act and the new Sections 82 and 86.
Sections 54 and 54F of the Income-tax Act, 1961 – Sections 82 and 86 of the Income-tax Act, 2025 – encourage reinvestment of capital gains in residential housing. They look similar but apply to different assets and work differently.
Side-by-side comparison
| Point | Section 54 (new Sec 82) | Section 54F (new Sec 86) |
|---|---|---|
| Who | Individual / HUF | Individual / HUF |
| Asset sold | Long-term residential house | Any long-term asset other than a residential house (plot, shares, gold, commercial property) |
| Investment needed | Amount of capital gain | Net sale consideration |
| If partly invested | Exemption = amount invested | Exemption proportionate: gain × invested ÷ net consideration |
| New asset | One residential house in India (two once in lifetime if gain ≤ ₹2 crore) | One residential house in India |
| Ownership condition | None | Must not own more than one house (other than the new one) on the date of sale |
| Time limit | Buy 1 year before or 2 years after; construct within 3 years | Same |
| Cap | Cost of new house above ₹10 crore ignored | Same |
| Lock-in | 3 years | 3 years; also no other house purchase within 2 years / construction within 3 years |
The Capital Gains Account Scheme
If the new house is not bought by the due date of filing the return, deposit the unutilised amount in the Capital Gains Account Scheme (CGAS) with a designated bank before that date. Amounts not used within the 2/3-year period become taxable. See our CGAS guide.
Example 1: Section 54 – house sold, new house bought
Example: Mr Khanna sells a flat in Pitampura in August 2025 with an LTCG of ₹60,00,000 (after choosing the better of the indexation options). Net consideration is ₹1.5 crore. In March 2026 he buys a flat in Rohini for ₹85,00,000.
- Required investment under Section 54: the gain of ₹60,00,000.
- Invested: ₹85,00,000 – more than the gain.
- Exemption: ₹60,00,000. Taxable gain: nil.
He does not need to invest the full ₹1.5 crore sale proceeds – only the gain.
Example 2: Section 54F – plot sold
Example: Mrs Sethi sells a plot in Sonipat in July 2025 for a net consideration of ₹80,00,000, with LTCG of ₹50,00,000. She owns one flat already. She buys a second flat for ₹60,00,000 in December 2025.
- Exemption = ₹50,00,000 × ₹60,00,000 ÷ ₹80,00,000 = ₹37,50,000.
- Taxable LTCG = ₹12,50,000.
Under 54F she had to invest the whole ₹80 lakh to get full exemption. Because she owned only one house on the date of sale, she qualified.
Example 3: two houses under Section 54
Example: Mr Bhatia sells his house with an LTCG of ₹1.8 crore and buys two flats – one in Rohini and one in Dehradun – for ₹1 crore each. As the gain does not exceed ₹2 crore, he can opt (once in a lifetime) to claim exemption for both. If he had made a gain of ₹2.2 crore, only one house would qualify.
Under-construction property and builder delays
- Booking an under-construction flat counts as construction – it must be completed within three years from the date of sale.
- Payments to the builder made before the due date of return count as investment; the rest must go to CGAS.
- If the builder delays beyond three years, courts have sometimes allowed exemption where the taxpayer paid substantially and the delay was beyond control, but it is a litigated area.
Joint ownership and spouse's name
- If you sold a property you co-owned, each co-owner computes their own gain and their own investment.
- Investment in the joint name of seller and spouse is usually accepted. Investment solely in the spouse's or child's name is risky.
Withdrawal of exemption
- Selling the new house within three years: the exempted gain is added back (by reducing the cost of the new house for computing gain on its sale).
- Under 54F, buying another house within two years or constructing one within three years (other than the new house) withdraws the exemption.
- CGAS amount not used within time: taxed in the year the period ends.
Common mistakes
- Investing only the gain under 54F when the law requires the full net consideration.
- Missing the CGAS deposit before the return due date.
- Owning two or more houses on the date of sale and still claiming 54F.
- Buying a commercial property or a plot without constructing a house.
- Investing abroad – the new house must be in India.
Key takeaway
Section 54 needs reinvestment of the gain; Section 54F needs reinvestment of the net consideration. Both require a house in India within 2–3 years, with a ₹10 crore cap and three-year lock-in. Plan the purchase and CGAS deposit before the return due date. Our capital gains planning service can model the best combination of 54, 54F and 54EC for your sale.
Official references
Provisions discussed (summaries in our Law Library):
- Income-tax Act, 2025 – Section 82 (corresponds to 54): Exemption – sale of house, reinvestment in house
- Income-tax Act, 1961 – Section 54 (corresponds to 82): Exemption – sale of house, reinvestment in house
- Income-tax Act, 2025 – Section 86 (corresponds to 54F): Exemption – other asset, reinvestment in house
- Income-tax Act, 1961 – Section 54F (corresponds to 86): Exemption – other asset, reinvestment in house
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
Can I claim both Section 54 and 54F?
Yes, if you sell two different types of assets – for example a house (54) and a plot or shares (54F) – and meet the conditions for each. The same new house can be used for both, subject to the limits.
Is there a maximum exemption under Section 54?
Yes. From FY 2023-24, the cost of the new house considered for exemption is capped at ₹10 crore under both Section 54 and Section 54F.
Can I buy two houses under Section 54?
Once in a lifetime, if the long-term capital gain does not exceed ₹2 crore, you can invest in two residential houses in India under Section 54.
Does the new house have to be in my name?
Generally yes. Courts have allowed investment in the name of a spouse in some cases, but the safer course is to buy in the seller's own name or jointly.
What happens if I sell the new house within three years?
The exemption is withdrawn – the amount exempted is taxed as capital gain in the year of the new sale (by reducing the cost of the new house).
Can I buy the new house before selling the old one?
Yes. A house bought within one year before the date of sale qualifies under both Section 54 and 54F.
Is a plot purchase enough for Section 54?
No. A residential house must be purchased or constructed. Buying a plot qualifies only if a house is constructed on it within three years.
Does land cost count for construction under Section 54F?
Courts have generally allowed the cost of land on which the house is constructed within the time limit to be counted as investment.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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