Section 54 — Capital Gains Exemption on Sale of Residential House 2025-26
Updated: 3 June 2026 | FY 2025-26 | Holding Period: 24+ months | LTCG Exemption
Section 54 exempts Long-Term Capital Gains (LTCG) arising from the sale of a residential house property if you reinvest in a new residential house. The original house must have been held for more than 24 months. Purchase the new house within 1 year before or 2 years after the sale date, or complete construction within 3 years. Budget 2023 allows purchase of 2 houses if LTCG is ≤ ₹2 crore — available once in a lifetime. Unused proceeds must be deposited in a Capital Gains Account Scheme (CGAS) before the ITR due date.
LTCG Exempt
Section 54 — entire LTCG exempt if reinvested in new residential house.
Purchase: within 2 years after sale. Construction: within 3 years. 2-house option for LTCG ≤ ₹2Cr (once in lifetime).
Purchase: within 2 years after sale. Construction: within 3 years. 2-house option for LTCG ≤ ₹2Cr (once in lifetime).
Section 54 vs Section 54F vs Section 54EC — Quick Comparison
| Section | Asset Sold | Reinvestment Required | Time Limit | Max Exemption |
|---|---|---|---|---|
| 54 | Residential house property (LTCG) | Buy or construct residential house | Purchase: 1 yr before / 2 yrs after; Construction: 3 yrs | Full LTCG (1 or 2 houses) |
| 54F | Any LTCA other than residential house | Buy or construct residential house | Same as Section 54 | Proportionate (net proceeds invested) |
| 54EC | Any long-term capital asset | Invest in NHAI / REC bonds | Within 6 months of sale | Up to ₹50 lakh |
Section 54 — Key Conditions at a Glance
| Parameter | Requirement |
|---|---|
| Asset sold | Residential house property (house, flat, portion of building used as residence) |
| Holding period | More than 24 months (long-term) |
| New asset | One residential house in India (two if LTCG ≤ ₹2Cr — once in lifetime) |
| Purchase time limit | 1 year before OR 2 years after date of transfer |
| Construction time limit | 3 years from date of transfer |
| CGAS deposit deadline | Before ITR due date (usually 31 July) of the sale year |
| Who can claim | Individual or HUF (not companies or firms) |
| New house: location | Must be in India (NRIs can also claim — new house must be in India) |
| Lock-in on new house | Cannot sell new house within 3 years of purchase/construction |
Capital Gains Account Scheme (CGAS)
If you cannot purchase or begin construction of the new house before your ITR due date, you must deposit the unused capital gains amount (not the full sale proceeds) in a CGAS account. Key CGAS rules:
| CGAS Detail | Rule |
|---|---|
| Who can open | Any individual/HUF claiming Section 54/54F exemption |
| Where to open | Any nationalised/authorised bank (SBI, PNB, Bank of Baroda, Canara Bank, etc.) |
| Form to open | Form A (opening application) |
| Form to withdraw | Form B (with assessing officer's approval) or Form C for unutilised amount |
| Account types | Type A (savings — flexible withdrawals) or Type B (term deposit — higher interest) |
| Deadline to deposit | On or before ITR due date of the year of sale (not extended deadline) |
| Withdrawal deadline | Must use for new house within 2 yrs (purchase) or 3 yrs (construction) from original sale |
| If unused at deadline | Unspent CGAS balance taxable as LTCG in the year the time limit expires |
Section 54EC — Bond Investment Alternative (Up to ₹50 Lakh)
Instead of buying a house, you can invest LTCG up to ₹50 lakh in notified bonds issued by NHAI (National Highways Authority of India) or REC (Rural Electrification Corporation) within 6 months from the date of sale. The bonds have a lock-in of 5 years. If sold or transferred before 5 years, the LTCG becomes taxable. Section 54EC can be combined with Section 54 — e.g., invest part in new house (54) and balance in bonds (54EC) for full exemption.
Frequently Asked Questions
What is the Capital Gains Account Scheme (CGAS) and why is it needed?
If you sell a residential house and cannot reinvest the LTCG amount in a new house before filing your ITR (due date), you must deposit the unused capital gains amount in a Capital Gains Account Scheme (CGAS) account with any nationalised bank before the ITR due date. This preserves your Section 54 exemption. You submit Form A to open the account, and Form B to withdraw funds for the new house purchase or construction. If you do not use the CGAS amount within the prescribed time limit (2 years for purchase, 3 years for construction), the unused amount becomes taxable in the year the time limit expires.
Can I buy 2 houses under Section 54 exemption?
Yes, but only once in your lifetime and only if your LTCG is ₹2 crore or less. Budget 2023 amended Section 54 to allow purchase of two residential houses (instead of one) for this limited case. This one-time option applies per taxpayer — you cannot claim the two-house benefit again in any future sale. If LTCG exceeds ₹2 crore, you can only claim exemption for one new house. This lifetime restriction means even if you sell multiple properties over your lifetime, you can exercise the two-house option only once.
What is the time limit for constructing a new house to claim Section 54 exemption?
The new residential house must be constructed within 3 years from the date of sale/transfer of the original property. Construction must be completed within this period — merely starting construction is not sufficient. If construction is not completed within 3 years, the exemption is denied and LTCG becomes taxable. If you park funds in CGAS for construction, you must complete construction within 3 years of the original sale date (not 3 years from CGAS deposit). Keep completion certificate, electricity connection approval, and possession documents as proof.
Is Section 54 exemption available to NRIs selling property in India?
Yes, Section 54 exemption is available to NRIs. An NRI who sells a residential house property in India can claim Section 54 exemption by reinvesting LTCG in a new residential house in India. However, the buyer must deduct TDS at 20% (plus surcharge and cess) under Section 195 on the full sale consideration. The NRI must then file an ITR in India, claim the Section 54 exemption, and apply for a tax refund if excess TDS was deducted. NRIs can also use CGAS before the ITR deadline to park unused proceeds.
What is the difference between Section 54, Section 54F, and Section 54EC?
Section 54: applies when you sell a residential house and buy/construct another residential house. Section 54F: applies when you sell any long-term capital asset OTHER than a residential house (e.g., shares, plot, commercial property) and reinvest the NET SALE PROCEEDS (not just gains) in a new residential house. Section 54EC: applies to any long-term capital asset — you invest LTCG (up to ₹50 lakh) in specified bonds (NHAI, REC) within 6 months — no new house required. Section 54 and 54F cannot be claimed simultaneously for the same property. Section 54EC can be combined with 54 or 54F for partial exemption.
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