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Guide · Capital Gains

Section 54F — LTCG Exemption on Buying One New House

Sold shares, gold, land or any asset other than a house? Reinvest the net sale consideration in one residential house and shelter the long-term capital gain — conditions, the Rs10 crore cap, CGAS and 54 vs 54F vs 54EC.

Written by
TaxClue Editorial Desk
Updated
18 August 2026
Reading time
5 min
Questions
16 answered
  • Updated for AY 2026-27
  • CA reviewed
  • LTCG 12.5% planning
Quick Answer

Section 54F exempts the long-term capital gain on the sale of any long-term asset other than a residential house (equity shares, mutual funds, gold, land, jewellery, bonds) if you reinvest the entire net sale consideration in one residential house in India. Invest the whole consideration and the gain is fully exempt; invest part and you get a proportionate exemption. Buy within 2 years (or 1 year before) or construct within 3 years. Maximum exemption is capped at Rs10 crore.

Section 54 vs 54F

How Section 54F Differs From Section 54

Both defer capital-gains tax by reinvesting in a house, but they cover different sold assets. Section 54 is for gains on a residential house; Section 54F is for gains on everything else that is long-term.

54

Section 54 — house sold

  • Asset sold: a residential house
  • Reinvest only the capital gain
  • No cap on other houses you own
  • Up to 2 houses if gain ≤ Rs2 crore (once in a lifetime)
54F

Section 54F — other asset sold

  • Asset sold: shares, gold, land, etc. (not a house)
  • Reinvest the full net sale consideration
  • Must not own >1 other house on the sale date
  • Only 1 new house qualifies
The one-house ownership trap

On the date of transfer you must not own more than one residential house (apart from the new one). Own two or more and Section 54F is denied entirely — for such cases only Section 54EC bonds remain. This condition trips up investors who already hold a home and a let-out flat.

Eligibility

Section 54F — Conditions at a Glance

ConditionRequirement
Asset soldAny long-term capital asset except a residential house
Holding period>12 months (listed equity / equity MFs) or >24 months (most other assets) to be long-term
New assetOne residential house in India (not abroad, not a plot alone)
Purchase window1 year before or 2 years after the transfer
Construction windowWithin 3 years of the transfer
Ownership at transferNot more than 1 other residential house
ReinvestNet sale consideration (not merely the gain)
Exemption capInvestment counted only up to Rs10 crore
Lock-inDo not sell the new house, or buy/construct another house, for 3 years

Renumbered as clause 85 of the Income-tax Act, 2025 from AY 2026-27; the well-known "Section 54F" label and the substance are unchanged.

Lock-in — do not break it

If you sell the new house within 3 years, or buy/construct another house within 2/3 years, the exemption you claimed is reversed and taxed as LTCG in that later year. Plan the timeline before you claim.

The maths

How Much Exemption Do You Get?

Invest the entire net sale consideration and the whole gain is exempt. Invest only part and the exemption is proportionate:

  • Exempt gain = Capital gain × (Amount invested in house ÷ Net sale consideration)
  • The balance gain is taxable at 12.5% LTCG (no indexation) for transfers on/after 23 July 2024, over the Rs1.25 lakh annual exemption where the asset is listed equity/equity MF.

Full investment — 100% exempt

LTCG on shares/goldRs 40,00,000
Net sale considerationRs 1,00,00,000
Invested in new houseRs 1,00,00,000
Taxable gainRs 0
Tax savedRs 5,00,000

Partial — proportionate

LTCG on shares/goldRs 40,00,000
Net sale considerationRs 1,00,00,000
Invested in new houseRs 60,00,000
Exempt = 40L × 60/100Rs 24,00,000
Taxable gainRs 16,00,000

Estimate your own gain and tax with the income-tax calculator or the capital-gains calculator before you commit funds.

Choose the route

Section 54F vs 54 vs 54EC

Parameter54F5454EC
Asset soldAny LTCA except a houseResidential houseLand or building (LTCA)
Reinvest in1 house1–2 housesNHAI / REC / PFC / IRFC bonds
Amount to investFull net considerationOnly the capital gainOnly the capital gain
Investment limitUp to Rs10 crUp to Rs10 crRs50 lakh / FY
Time limitBuy 2 yr / build 3 yrBuy 2 yr / build 3 yr6 months
Other-house barMax 1 other houseNo barNo bar
Lock-in3 years3 years5 years

Section 54EC bonds are capped at Rs50 lakh per financial year and are available only against gains on land/building.

✓Section 54F suits you if

  • You sold shares, mutual funds, gold or land (not a house)
  • You will reinvest the whole sale proceeds in one home
  • You own at most one other house on the sale date
  • You want to hold the new house long term

!Look at 54EC / 54 instead if

  • You already own two or more houses
  • You want to invest only the gain, not the whole consideration
  • You sold a house (use Section 54)
  • You prefer bonds and only need to shelter up to Rs50 lakh
Timing

Capital Gains Account Scheme (CGAS)

If the house is not bought or construction not begun by the ITR due date (usually 31 July for non-audit cases) for the year of transfer, park the unutilised amount in a Capital Gains Account Scheme account at a notified bank before that date to preserve the claim.

  • Open the CGAS account before the ITR due date
  • Deposit the unutilised net consideration
  • Use it to buy within 2 years or construct within 3 years
  • Report the exemption in ITR-2 Schedule CG
Unused CGAS becomes taxable

If the CGAS money is not used to buy/build the house within the 2/3-year window, the unused amount is taxed as LTCG in the year the time limit expires. Track the deadline from the original transfer date, not the deposit date.

Sold shares, gold or land and want the exemption computed and filed correctly?

Talk to a Tax Expert →
Sources
  1. Act & forms: incometax.gov.in
  2. Section 54F, Income-tax Act 1961 (clause 85, Income-tax Act 2025)
  3. LTCG 12.5% & Rs10 crore 54/54F cap: Finance (No. 2) Act 2024, eff. 23 Jul 2024
  4. Capital Gains Account Scheme, 1988

Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position or speak to our CA team before you act on it.

People also ask

Section 54F — Frequently Asked Questions

Short, direct answers to the 16 questions readers ask most on this topic.

Section 54F exempts the long-term capital gain arising on the sale of any long-term capital asset other than a residential house — such as equity shares, mutual funds, gold, land or jewellery — if you reinvest the net sale consideration in one residential house in India. From AY 2026-27 the same provision is renumbered as clause 85 of the Income-tax Act, 2025, but the popular label "Section 54F" and the rules are unchanged.

Any long-term capital asset except a residential house: listed and unlisted equity shares, equity and debt mutual funds, gold (physical, digital, SGBs), commercial property, urban agricultural land, bonds, debentures, jewellery, art and foreign assets. Gains on a residential house are covered by Section 54 instead, not 54F. There is no limit on the number or value of assets you sell — all net proceeds can be pooled into the one new house.

Section 54 applies when you sell a residential house and only the capital gain has to be reinvested. Section 54F applies when you sell any other long-term asset and the entire net sale consideration must be reinvested. Section 54F also bars you from owning more than one other residential house on the date of sale, while Section 54 has no such bar.

If you reinvest the entire net sale consideration in the new house, the whole long-term capital gain is exempt. If you reinvest only part, the exemption is proportionate: Exempt gain = Capital gain x (Amount invested in house / Net sale consideration). For example, a Rs40 lakh gain on Rs1 crore consideration with Rs60 lakh invested gives Rs24 lakh exempt and Rs16 lakh taxable.

Yes. From AY 2024-25 the investment counted for exemption under Section 54 and 54F is capped at Rs10 crore. If the cost of the new house exceeds Rs10 crore, only Rs10 crore is treated as invested for computing the exempt gain.

For transfers on or after 23 July 2024, long-term capital gains are taxed at 12.5% without indexation. For listed equity shares and equity mutual funds the first Rs1.25 lakh of LTCG in a year is exempt, and the balance is taxed at 12.5%. Any gain left taxable after a partial 54F exemption is charged at these rates.

You may buy the new house within 1 year before or 2 years after the date of transfer, or construct it within 3 years of the date of transfer. The timeline runs from the original transfer date of the asset you sold, not from any later date.

You can own up to one residential house (other than the new one) on the date of transfer and still claim 54F. If you own two or more houses on that date, Section 54F is not available at all. Section 54EC bonds are the alternative for such taxpayers.

Yes. If you sell the new house within 3 years of buying or building it, or if you buy another house within 2 years or construct another within 3 years of the transfer, the exemption already allowed is withdrawn and taxed as LTCG in the later year.

No. The new residential house must be situated in India. Investment in a property abroad does not qualify for Section 54F exemption.

If you have not bought or begun constructing the house by the due date for filing your return for the year of transfer (usually 31 July for non-audit cases), you must deposit the unutilised net consideration in a Capital Gains Account Scheme (CGAS) account at a notified bank before that due date to keep the 54F claim alive. The funds must then be used to buy within 2 years or construct within 3 years.

If the CGAS deposit is not used to buy or construct the house within the 2-year or 3-year window, the unutilised amount is treated as long-term capital gain in the financial year in which the time limit expires and taxed accordingly.

Under Section 54F you must reinvest the entire net sale consideration (sale value less transfer expenses), not just the capital gain, to get full exemption. This is the key difference from Section 54 and Section 54EC, where only the capital gain needs to be reinvested.

Yes. An NRI can claim Section 54F on gains taxable in India, provided the new residential house is bought or constructed in India and all the usual conditions are met. TDS is typically deducted on the sale proceeds; the NRI recovers any excess by claiming the 54F exemption when filing the Indian ITR.

No. Section 54F allows reinvestment in only one residential house. Buying two houses does not increase the exemption and can also breach the lock-in/ownership conditions. (Section 54, by contrast, allows up to two houses once in a lifetime if the gain is up to Rs2 crore.)

Individuals and HUFs with capital gains report the 54F exemption in ITR-2 (or ITR-3 if there is business income) under Schedule CG, giving details of the asset sold, the new house and any CGAS deposit. Keep the sale deed, purchase deed and CGAS proof for assessment.