Section 54

Full form: Capital Gains Exemption on Property

Tax & Deductions

Section 54 exempts capital gains from the sale of a residential house if the proceeds are reinvested in another residential house within specified timelines. Provides significant tax relief for people upgrading or moving homes.

In detail

Section 54 conditions:n1. Seller must be individual or HUFn2. Property sold must be a long-term capital asset (held 2+ years)n3. New property must be purchased 1 year BEFORE or 2 years AFTER sale daten4. OR construction must be completed within 3 years from salen5. New property must be in Indian6. Exemption capped at Rs 10 Cr from FY 2023-24nnIf proceeds not invested within time limit: deposit in Capital Gains Account Scheme (CGAS) in nationalised bank before ITR filing date.

Formula

Exemption = Min(Capital gains, New property cost)nIf gains > new property cost: balance gains taxable at 12.5% (no indexation post-July 2024)

Real-life example

🇮🇳 India example

Priya sells flat (LTCG Rs 40L) and buys new flat for Rs 60L within 1 year. Section 54 exemption = Rs 40L (entire LTCG). Tax = zero. If she buys only Rs 25L flat: exemption = Rs 25L. Remaining Rs 15L LTCG taxable at 12.5% = Rs 1.875L tax.

Frequently asked questions

Can I buy two houses and claim Section 54 exemption on both? ▼
Section 54 allows investment in ONE new house per sale (for gains below Rs 2 Cr, CBDT allowed two houses in one instance). For gains above Rs 2 Cr, strictly one new house. Section 54EC (bonds) can be used for remaining gains up to Rs 50L.