You can save long-term capital gains tax on property by reinvesting in a residential house (familiar section 54 for a house sold, section 54F for other assets such as a plot) or by buying specified bonds within six months (section 54EC, capped at ₹50 lakh). Under the Income-tax Act, 2025, in force from 1 April 2026, these are renumbered as sections 82, 86 and 85 respectively, with the same core conditions. If you cannot invest before your return is due, park the money in the Capital Gains Account Scheme.
Key takeaways
- Section 54 (now 82): sell a house, buy or build one residential house in India; exemption capped at ₹10 crore of investment.
- Section 54F (now 86): sell any other long-term asset, such as a plot, and invest the net sale proceeds in one house.
- Section 54EC (now 85): invest up to ₹50 lakh in specified bonds within six months of selling land or a building; five-year lock-in.
- Buy within 1 year before or 2 years after the sale, or construct within 3 years; use the Capital Gains Account Scheme for money not yet invested.
- Selling the new house within 3 years reverses the benefit.
The three routes at a glance
| Feature | Section 54 (new 82) | Section 54F (new 86) | Section 54EC (new 85) |
|---|---|---|---|
| Asset sold | Residential house (long-term) | Any long-term asset other than a house, e.g. plot, commercial property | Land or building (long-term) |
| Who can claim | Individual, HUF | Individual, HUF | Any taxpayer |
| Where to invest | One residential house in India (two, once in a lifetime, if gain is up to ₹2 crore) | One residential house in India | Specified bonds (NHAI, REC and other notified issuers) |
| What to invest | The capital gain | The net sale consideration (proportionate relief if less) | The capital gain, up to ₹50 lakh |
| Time limit | Buy 1 year before or 2 years after; build within 3 years | Same as section 54 | Within 6 months of sale |
| Cap | ₹10 crore of cost considered | ₹10 crore of cost considered | ₹50 lakh across the year of sale and the next year |
| Lock-in | 3 years for the new house | 3 years for the new house | 5 years for the bonds |
Section 54: selling a house and buying another
If you sell a residential house held for more than 24 months and buy or build another residential house in India, the long-term gain is exempt to the extent invested. Since 2023, the cost of the new house considered is capped at ₹10 crore. If the gain is ₹2 crore or less, you can choose, once in your lifetime, to invest in two houses.
Example: you sell a flat on Avinashi Road and make a long-term gain of ₹45 lakh. You buy a villa for ₹70 lakh within two years. The full ₹45 lakh gain is exempt.
Section 54F: selling a plot or other asset
Many Coimbatore families hold land rather than houses. If you sell a plot, farm land that is a capital asset, or commercial property, section 54F lets you buy or build one residential house. The difference from section 54 is that you must invest the net sale consideration, not just the gain, for full exemption. If you invest less, the exemption is proportionate: gain × amount invested ÷ net consideration.
Conditions to watch: on the date of sale you must not own more than one residential house other than the new one, and you must not buy another house within two years or build one within three years (other than the new house).
A popular route is to sell an idle plot and build a home on another plot. Construction must be completed within three years. See our comparison of villa plot vs ready villa if you are weighing both.
Section 54EC: capital gains bonds
If you do not want another house, you can invest the gain from land or a building in specified bonds within six months of the sale. The bonds are redeemable after five years, and the overall cap is ₹50 lakh across the financial year of sale and the following year. There is no Capital Gains Account Scheme option for this route; you must actually buy the bonds in time. The list of notified issuers can change, so check the latest notification before investing.
The Capital Gains Account Scheme (CGAS)
Buying or building a house often takes longer than the due date for your return. To keep the section 54 or 54F exemption, deposit the unused amount in a CGAS account at an authorised bank branch before the return due date, then withdraw it for the purchase or construction within the time limit. Money not used in time becomes taxable as a long-term gain in the year the period ends.
Section numbers under the new Act
From 1 April 2026 the Income-tax Act, 2025 applies to sales in tax year 2026-27 onwards. The exemptions continue under the 2025 Act with new section numbers; most people still search for them by the old names 54, 54B, 54EC and 54F. For sales made up to 31 March 2026, you still claim under the 1961 Act numbering, even if you invest after that date. Mention both numbers when you speak to your adviser to avoid confusion.
Common mistakes
- Buying the new house in a spouse’s sole name. Courts have taken differing views; the safer course is to include yourself as owner.
- Investing in a house outside India. The house must be in India.
- Missing the six-month window for bonds, which runs from the date of transfer, not the end of the year.
- Selling the new house within three years, which withdraws the exemption.
- Forgetting that short-term gains do not qualify for these exemptions (except section 54B for agricultural land).
Start with the basics in capital gains tax on selling property, then plan the reinvestment before you sign the sale deed.
Frequently asked questions
Can I claim both section 54 and 54EC on the same sale?
Yes. You can invest part of the gain in a house and part in bonds, claiming each exemption on the amount invested, subject to the conditions and caps.
Do sections 54, 54F and 54EC still exist under the new Act?
The Income-tax Act, 2025 renumbered them. The substance is broadly carried over, but confirm the current section references with your CA or the official Act text.
Can I use section 54F to build a house on land I already own?
Construction of a new residential house within three years qualifies. Discuss the land ownership position and timing with your chartered accountant.
Is there an upper limit on section 54 exemption?
Yes. Since 2023, the cost of the new house taken into account is capped at ₹10 crore.
This article is general information as of September 2026, not legal, tax or financial advice. Rules and rates change; confirm with a qualified advocate, chartered accountant or the relevant department before you act.
References
- Income Tax Department: Exemptions from capital gains
- Foros: Capital gains exemptions, sections 82 to 88 of the 2025 Act
- ClearTax: Income-tax Act 2025 old vs new section numbers
- CBDT: FAQs on transition to the Income-tax Act, 2025
Reinvesting sale proceeds in a new home?
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