Section 54 and 54F Capital Gains Exemption 2026: How to Save Tax When You Sell Property

Section 54 (now Section 82 of the Income-tax Act, 2025) exempts the long-term gain on selling a house if you buy or build another house. Section 54F (now Section 86) exempts the gain on selling any other long-term asset if you put the net sale proceeds into one house. For both, the cost of the new house counted is capped at ₹10 crore, and you buy from one year before to two years after the sale, or build within three years.

Section 54 versus Section 54F

If the sale price or the stamp duty value is ₹50 lakh or more, the buyer deducts 1% TDS on the higher of the two under Section 393(1) of the 2025 Act (earlier Section 194IA). Our TDS on property sale guide explains the deduction and how to claim the credit.

Section 54F conditions people miss

• You lose the exemption if, on the transfer date, you own more than one residential house other than the new one. One other house is allowed.
• You also lose it if you buy another residential house within one year, or build one within three years, after the transfer (s. 86(5)).
• If you buy another house in the second year after the sale, the exempt gain is charged as long-term gain in the year you buy it (s. 86(6)). All these clocks run from the date you sold the original asset, not from the date you bought the new house.
• Selling the new house within three years charges the exempt gain in that year (s. 86(7)).

Worked example: Section 54

Assume you bought a flat on 10 August 2024 for ₹1.40 crore and sold it on 15 October 2026 for ₹2.40 crore, with ₹4 lakh of selling expenses. At about 26 months it is long-term. Gain = ₹2.40 crore − ₹4 lakh − ₹1.40 crore = ₹96 lakh. For property bought after 22 July 2024 there is no indexation and the rate is 12.5% (Section 197).

Worked example: Section 54F

Assume you sell unlisted shares held for three years. Net consideration is ₹80 lakh, cost is ₹20 lakh, so the gain is ₹60 lakh. Exempt gain = ₹60 lakh × amount invested ÷ ₹80 lakh.

Investing only the ₹60 lakh gain, the Section 54 habit, still leaves ₹15 lakh taxable under 54F.

Property bought before 23 July 2024: the indexation option

For a resident individual or HUF selling land or a building acquired before 23 July 2024, Section 197(3) ignores any tax above what 20% with indexation would give. In effect you pay the lower of 12.5% without indexation and 20% with indexation. Indexed cost = cost × CII of the sale year ÷ CII of the purchase year. The CII is 384 for FY 2026-27, 200 for FY 2012-13 and 117 for FY 2005-06.

How this comparison works on the part of a gain left taxable after a Section 54 or 54F claim is a point to confirm with a tax professional before you file.

If you cannot buy before the return due date: the Capital Gains Account Scheme

If the money is not used by the time you file, deposit the unused amount in a specified bank under the notified Capital Gains Accounts Scheme on or before the due date for your return under Section 263(1), which is 31 July for individuals who need no audit, and attach the proof. Under Section 54 the deposit is the unused gain; under 54F it is the unused net consideration. The deposit counts as cost of the new house. Withdrawals use the scheme's forms, such as Form C for an Account-A, and the money must be used within the original two-year or three-year windows. Our CGAS guide covers the account types.

If the deposit is not fully used in time, the unused part is not lost but becomes taxable. Under Section 54 the unused amount is charged as long-term gain in the tax year in which three years from the sale end (s. 82(4)). Under 54F the proportion of the exemption linked to the unused amount is charged in that same year (s. 86(4)). In both cases you may then withdraw the money.

Section 54EC bonds if you do not want a house

Section 85 (earlier 54EC) applies only to long-term gain on land or a building. You invest the gain within six months of the sale in bonds redeemable after five years, issued by NHAI, REC or another issuer the Central Government notifies. Investment from one sale is capped at ₹50 lakh in a tax year, counted together across the year of sale and the next. Selling or borrowing against the bond within five years charges the gain. It cannot be used for gains on shares, fund units or gold. Check the current issuers and coupon on the issuer's offer document; our 54EC guide has the detail.

Before you sign the sale deed

• Pick the section by the asset you sold: a house means Section 54, anything else means Section 54F.
• For 54F, count the residential houses you own before the transfer date.
• Write down three dates: the purchase window, the construction window and the return due date for the CGAS deposit.
• Plan to hold the new house for at least three years.
• Keep the CGAS deposit proof and the purchase or construction papers with your return.