Income Tax · Capital Gains
Capital Gain Exemption Under Section 54 (India, 2026)
Section 54 lets you avoid tax on the long-term capital gain from selling a residential house, if you put that gain into buying or building another residential house in India within set time limits. It is one of the most used exemptions by individuals, but it comes with strict conditions on timing, the type of asset, and an upper cap on the exemption. This guide explains who can claim it, how much is exempt, the deadlines, and what to do if you cannot reinvest before your return is due.
- What: exempts long-term capital gain from selling a residential house if reinvested in another house in India.
- Who: individuals and HUFs, not companies or firms, for this section.
- Buy: within 1 year before or 2 years after the sale.
- Build: within 3 years after the sale.
- Amount: the lower of the gain and the amount reinvested; capped (Rs 10 crore as notified).
- Not reinvested in time: deposit in the Capital Gains Account Scheme before your return is due.
01What section 54 exempts
Section 54 exempts the long-term capital gain that arises when you sell a residential house, provided you reinvest that gain into another residential house in India. The idea is simple: if you are moving from one home to another rather than cashing out, the law does not tax the gain.
Two things must be true for section 54 specifically: the asset you sold is a residential house, and it was a long-term capital asset (held for more than the required period). If either is different, a different section may apply instead.
02Who can claim it
Section 54 is available to an individual and a Hindu Undivided Family (HUF). It is not available to a company or a firm for this specific section.
- The asset sold must be a long-term residential house.
- The new asset must be a residential house situated in India.
- Buying a commercial property or a plot of land alone does not qualify under section 54 (land may qualify only if a house is built on it within the time limit).
If you sold a different asset, such as shares, gold or a plot, and want to invest the gain in a house, that is section 54F, not section 54. The two are close but have different rules, covered in section 54 and 54F compared.
03The time limits
Timing is where most claims are won or lost. The new house must be:
| Action | Time limit |
|---|---|
| Buy a new house | Within 1 year before, or 2 years after, the sale |
| Construct a new house | Within 3 years after the sale |
Notice that a purchase can even be a little before the sale (up to one year before). For construction, the clock runs for three years from the date of sale. Missing these windows usually means losing the exemption, so plan the dates carefully.
Lock-in on the new house
The new house generally has to be held for a set period (commonly three years). If you sell the new house too soon, the exemption you claimed can be withdrawn and taxed in the year of that sale. Confirm the current lock-in period before you sell the new house.
04How much is exempt
The exemption is the lower of the capital gain and the amount you reinvest in the new house. So if you reinvest the full gain, the whole gain is exempt; if you reinvest less, only that part is exempt and the rest is taxed.
- Reinvest an amount equal to or more than the gain: the full gain is exempt.
- Reinvest less than the gain: only the reinvested amount is exempt, the balance gain is taxable.
There is also an upper cap on the exemption, limiting the cost of the new house that can be counted. As currently notified, this cap is Rs 10 crore, which affects only very high-value transactions. A once-in-a-lifetime option to buy two houses instead of one is available where the gain is within a set limit. For reinvesting in bonds instead of a house, see section 54EC capital gain bonds.
05The Capital Gains Account Scheme
A common problem is that your income tax return is due before you have actually bought or built the new house. The law has an answer: the Capital Gains Account Scheme (CGAS).
- If you have not reinvested the gain by the due date for filing your return, deposit the unused gain in a CGAS account with a bank.
- Claim the exemption in your return on the basis of that deposit.
- Use the deposited money to buy or build the house within the section 54 time limits.
If you do not use the deposited amount within the time limit, the unused part becomes taxable in the later year. CGAS buys you time, but it does not remove the deadline.
06How Claw Tax helps
Claw Tax and Accounts is an online tax, GST and accounting service for India that connects you with a verified chartered accountant at a fixed, published price, with a Claw reviewer checking every filing before it is submitted.
If your house sale and reinvestment are simple and within the time limits, you can compute the gain and claim section 54 yourself for free on the government portal. Claw Tax is for the cases where a mistake is costly: working out the long-term gain correctly with indexation, deciding between section 54 and 54F, timing a purchase or construction inside the windows, using the Capital Gains Account Scheme, and staying within the exemption cap.
A verified chartered accountant from a network of 300+ partner CAs can compute the gain, apply the right exemption and file your capital gains return at a fixed, published price, with a Claw reviewer checking it before submission and reminders before the due date. See the services and prices at clawlaw.in/tax.
This is general information, not tax advice; a verified CA handles the specifics of your case.
07Frequently asked questions
What is capital gain exemption under section 54?
It exempts the long-term capital gain from selling a residential house, provided you reinvest the gain into buying or building another residential house in India within the time limits. If you reinvest an amount at least equal to the gain, the whole gain is exempt; if you reinvest less, only that part is exempt and the rest is taxed.
Who can claim section 54?
An individual or a Hindu Undivided Family (HUF) can claim section 54. It is not available to a company or a firm for this section. The asset sold must be a long-term residential house, and the new asset must be a residential house in India. Buying a commercial property or only a plot does not qualify under section 54.
What are the time limits under section 54?
To buy a new house, within one year before or two years after the sale. To construct a new house, within three years after the sale. If you cannot reinvest before your return is due, deposit the unused gain in a Capital Gains Account Scheme account and use it within these limits. Missing the windows usually means losing the exemption.
What is the difference between section 54 and 54F?
Section 54 applies when you sell a residential house and buy another house. Section 54F applies when you sell a different long-term asset, such as shares, gold or a plot, and invest the proceeds in a house. The conditions differ, for example 54F usually requires investing the net sale consideration, not just the gain, so the two are not interchangeable.
Is there a limit on the section 54 exemption?
Yes, there is an upper cap that limits the cost of the new house counted for the exemption, notified as Rs 10 crore at the time of writing. This affects only very high-value transactions. Confirm the current cap when you plan a large sale, as the figure and wording can change.
What if I sell the new house soon after buying it?
The new house generally has to be held for a set period, commonly three years. If you sell it too soon, the exemption you claimed under section 54 can be withdrawn and taxed in the year of that later sale. Confirm the current lock-in period before selling the new house so you do not trigger the withdrawal.