Section 54F — Capital Gains Exemption on New House Purchase

Updated: 3 June 2026 | Income-tax Act, 2025 | Verified against CBDT circulars

Section 54F of the Income-tax Act, 2025 provides an exemption on Long-Term Capital Gains (LTCG) arising from the sale of any long-term capital asset other than a residential house (shares, gold, commercial property, bonds, jewellery etc.) — if the net sale consideration is invested in one new residential house in India. Full exemption if entire proceeds are invested; proportionate exemption if partial. The new house must be purchased within 2 years or constructed within 3 years of the sale.

100%

LTCG exemption if entire net sale consideration invested in 1 new residential house
Proportionate exemption if partial investment. Unutilised amount must be parked in CGAS before ITR due date.

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Key restriction: On the date of transfer (sale), you must not own more than 1 residential house (excluding the new house being purchased). If you own 2 or more houses at the time of sale, you cannot claim Section 54F — only Section 54EC (bonds) remains an option for such cases.

Section 54F — Conditions at a Glance

Condition	Requirement
Asset sold	Any long-term capital asset EXCEPT a residential house (covered by Section 54)
Holding period	Asset held for more than 24 months (36 months for unlisted shares / immovable property); 12 months for listed equity, equity MFs, REITs
New asset	1 residential house property in India (not abroad)
Purchase timeline	Buy 1 year before or 2 years after date of transfer
Construction timeline	Construct within 3 years of date of transfer
Ownership condition at transfer date	Must not own more than 1 residential house on date of transfer (excluding new house)
Lock-in — no new house purchase	Cannot purchase another residential house within 2 years of transfer date
Lock-in — no new construction	Cannot construct another residential house within 3 years of transfer date
Amount of exemption	Full: if entire net consideration invested. Proportionate: Capital Gain × (Amount Invested ÷ Net Consideration)

Section 54F vs Section 54 vs Section 54EC — Comparison

Parameter	Section 54F	Section 54	Section 54EC
Asset sold	Any LTCA except residential house	Residential house only	Any long-term capital asset (immovable property from FY 2024-25 only)
Investment in	1 residential house in India	1 or 2 residential houses (up to ₹2 crore LTCG)	Specified bonds (NHAI / REC / IRFC / NABARD)
Investment limit	No limit — entire net consideration	No limit — entire net consideration	Max ₹50 lakh per financial year (₹50L in year of transfer + ₹50L in next FY = max ₹1 crore)
Time limit — purchase	1 yr before / 2 yrs after sale	1 yr before / 2 yrs after sale	6 months from date of transfer
Time limit — construction	3 years after sale	3 years after sale	N/A (bonds, not construction)
Ownership restriction	Max 1 residential house on date of transfer	No restriction on existing houses	No restriction
Lock-in period	3 years (new house + no second house)	3 years (new house)	5 years (bonds)
Exemption type	Proportionate to net consideration invested	Proportionate to net consideration invested	Up to ₹50L LTCG per FY

Capital Gains Account Scheme (CGAS) — Parking Unutilised Funds

If the new residential house has not been purchased or construction has not started by the due date of filing the ITR for the year in which the asset was transferred, the unutilised capital gain amount must be deposited in a Capital Gains Account Scheme (CGAS) account at a specified bank before the ITR due date (typically 31 July for non-audit cases).

The CGAS deposit preserves the Section 54F exemption claim. Funds must subsequently be: (a) used to purchase the house within 2 years of the original transfer date, or (b) used to complete construction within 3 years. If CGAS funds are not utilised within the time limit, the amount becomes taxable as LTCG in the year of expiry. CGAS deposits earn interest (similar to fixed deposits) but withdrawal is restricted to approved purposes.

Frequently Asked Questions

Which assets qualify for Section 54F exemption?

Section 54F covers Long-Term Capital Gains (LTCG) from sale of ANY long-term capital asset EXCEPT a residential house property. Qualifying assets include: equity shares, debt mutual funds, gold (physical, digital, SGBs), commercial property, agricultural land (urban), bonds, debentures, unlisted securities, foreign assets, jewellery, art, and any other long-term capital asset. The key exclusion is residential house property — gains from selling a residential house are covered by Section 54 (not 54F). There is no restriction on the value or number of assets sold — all proceeds can be pooled into the new house for maximum exemption under Section 54F.

Can an NRI claim Section 54F exemption?

Yes. Section 54F is available to NRIs (Non-Resident Indians) subject to certain additional conditions. The new residential house must be purchased or constructed in India. The NRI must meet the same holding period, investment timeline, and ownership conditions as a resident. For NRIs, the capital gain from sale of assets in India is taxable in India under the Income-tax Act, 2025, and Section 54F exemption can reduce this tax. However, TDS at 20% (plus surcharge and cess) is typically deducted on LTCG from sale of assets by NRIs before the net consideration reaches the seller. The NRI can claim the refund when filing their Indian ITR if Section 54F exemption is validly claimed.

What if only part of the sale proceeds are invested in the new house?

Section 54F provides proportionate exemption when only a part of the net sale consideration is invested. The formula is: Exempt Capital Gain = (Capital Gain × Amount Invested in New House) ÷ Net Sale Consideration. For example, if LTCG is ₹40 lakh, net consideration is ₹1 crore, and you invest ₹60 lakh in the new house, the exemption = ₹40L × ₹60L / ₹1 crore = ₹24 lakh. The remaining ₹16 lakh of LTCG is taxable at 12.5% (post-Budget 2024 rate). To claim full exemption, the entire net consideration (not just the gain) must be invested in the new house.

What is the Capital Gains Account Scheme (CGAS) and when must funds be deposited?

If the new house has not been purchased or construction not commenced by the due date of filing the ITR (typically 31 July for non-audit cases), the unutilised capital gain amount must be deposited in the Capital Gains Account Scheme (CGAS) in a designated bank before the ITR due date. The deposit in CGAS preserves the Section 54F exemption claim. The funds must then be utilised to purchase the house within 2 years or construct within 3 years from the original date of asset transfer. If the CGAS funds are not utilised within the prescribed period, the deposited amount becomes taxable as capital gain in the year of expiry of the time limit. CGAS accounts are available at specified nationalised and scheduled banks.

Can both spouses claim Section 54F exemption separately on the same house?

This is a contested area. Each individual taxpayer must independently satisfy Section 54F conditions — i.e., each must have sold a qualifying long-term capital asset, must invest their respective net consideration into the new house, and must independently satisfy the ownership conditions (not owning more than 1 residential house on the date of transfer, excluding the new house). If both spouses each received capital gains (e.g., from jointly held assets or separate asset sales) and both co-invest in the new house in proportion to their respective net considerations, there is a reasonable basis to claim 54F individually. However, co-ownership proportion and documentation of individual investment amounts must be clearly established to withstand scrutiny.

Capital Gains Tax Section 54 Exemption Section 54EC Bonds Carry Forward of Losses ITR-2 Filing (Capital Gains)

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