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The statute provides exemptions from long-term capital gains where the taxpayer appropriates the gain, or in some cases the net consideration, to specified assets within specified times. The principal provisions used by households are section 54, section 54F and section 54EC. Each has conditions that are easy to miss and a monetary ceiling that is easy to ignore. This article describes those provisions as they stand for a transfer in financial year 2025–26. It is not a drafting guide for a sale deed. The conditions should be confirmed with a qualified professional before the transfer is agreed.
A long-term gain on the transfer of a residential house may be exempt to the extent it is invested in another residential house in India, purchased within one year before or two years after the transfer, or constructed within three years. From assessment year 2024–25 the exemption cannot exceed ₹10 crore. If the new house is transferred within three years, the exemption is withdrawn in the manner the section provides. Deposit in the Capital Gains Account Scheme is the prescribed method of parking the amount where the new house has not yet been acquired by the due date of the return.
Where the asset transferred is not a residential house — for example gold, unlisted shares, or a plot — a long-term gain may be exempt if the net consideration, not merely the gain, is invested in a residential house, subject to the same time-limits in substance and to the ₹10 crore ceiling. The taxpayer must not own more than one residential house on the date of transfer, other than the new house. Partial investment produces a proportionate exemption. This section is unforgiving of a second existing house that was overlooked.
Long-term gain on land or a building may be invested, within six months of the transfer, in notified bonds — commonly associated with specified infrastructure issuers — up to ₹50 lakh. The bonds have a lock-in of five years. The exemption is the lowest of the gain, the amount invested, and ₹50 lakh. This route is useful where a new house is not intended. It is not a liquid investment.
The ₹10 crore ceiling on sections 54 and 54F, the requirement that the new asset be a residential house in India, the restriction on owning more than one house under section 54F, and the six-month window under section 54EC are conditions, not suggestions. Using the consideration to retire an unsecured loan, or to fund a wedding, and then hoping to claim the exemption, does not satisfy the section.
Indexation, where it remains available for a property acquired before 23 July 2024, and an exemption under section 54 are separate questions. A taxpayer may need both computations in order to decide whether reinvestment is necessary.
The Banerjee household in Chhindwara sold a residential flat and placed the entire consideration in a savings account, intending to “look for another house later.” The due date of the return arrived without a deposit in the Capital Gains Account Scheme and without a purchase. The exemption was not available. The tax was computed on the gain. The following year they sold nothing until a written plan for the section they intended to use had been prepared.
The exemption follows the asset into which the statute requires the money to go, within the time the statute allows. A general intention to “buy something someday” is not a section.
Investing only the gain under section 54F, when the section requires investment of the net consideration. The two amounts are different, and the shortfall costs a proportionate part of the exemption.