Capital Gains · Sections 54 & 54F
Section 54 And 54f Of Income Tax Act (India, 2026)
Sections 54 and 54F both let you save tax on a long-term capital gain by putting the money into a residential house, but they are not the same and are easy to mix up. Section 54 is for the sale of a house; section 54F is for the sale of almost anything else that is long term. This guide sets out the difference, how much each exempts, the time limits you must meet, and the traps that cause the exemption to be denied.
- Section 54: sold a residential house; reinvest the capital gain in another house.
- Section 54F: sold any other long-term asset; reinvest the net sale consideration in a house.
- Partial reinvestment: section 54 exempts the gain reinvested; section 54F exempts in proportion to the amount reinvested.
- Time limits: buy one year before or two years after, or construct within three years.
- CGAS: park unused money in a Capital Gains Account before the ITR due date.
- Cap and lock-in: an upper limit on the exemption applies, and selling the new house within three years reverses it.
01The core difference
Both sections give an exemption from long-term capital gains tax if you reinvest in a residential house in India. The difference is what you sold and how much you must reinvest.
| Point | Section 54 | Section 54F |
|---|---|---|
| Asset you sold | A residential house (long term) | Any long-term asset other than a house (shares, land, gold, and so on) |
| What you reinvest | The capital gain | The net sale consideration (the whole sale value) |
| Exemption if fully reinvested | The whole gain | The whole gain |
| If only part is reinvested | Exemption on the part of the gain reinvested | Exemption in proportion to the amount reinvested |
| Condition on other houses | No bar on owning other houses | You must not own more than one other house on the date of transfer |
So the practical rule is: sold a house, think section 54; sold anything else long term, think section 54F. The deeper walkthrough of the house-sale case is in section 54 of the Income-tax Act.
02Section 54 in detail
Section 54 applies when you sell a long-term residential house and reinvest the capital gain in another residential house in India.
- Only the capital gain needs to be reinvested, not the whole sale value.
- If you reinvest the full gain, the whole gain is exempt. If you reinvest part, the balance is taxable.
- You can buy one house one year before or two years after the sale, or construct a house within three years.
- The reinvestment into two houses is allowed once in a lifetime where the gain is within a specified limit.
Further detail on the computation and the documents is in capital gain exemption under section 54.
03Section 54F in detail
Section 54F applies when you sell any long-term asset other than a residential house, such as shares, a plot of land, or jewellery, and invest the net sale consideration in one residential house in India.
- You must reinvest the net sale value, not just the gain, to get the full exemption.
- If you reinvest only part, the exemption is proportionate: exempt gain equals the gain times the amount reinvested divided by the net sale consideration.
- You must not own more than one residential house (other than the new one) on the date of transfer.
- The same buy or construct time limits apply as under section 54.
The simplest way to remember it: section 54 asks you to reinvest only the gain; section 54F asks you to reinvest the whole sale value for a full exemption.
04Time limits that apply to both
The reinvestment windows are the same under both sections, and missing them is the most common reason an exemption is lost.
| Way you reinvest | Time limit |
|---|---|
| Buy a ready house | One year before or two years after the date of sale |
| Construct a house | Within three years of the date of sale |
| Park unused money | Deposit in the Capital Gains Account Scheme before the ITR due date |
The dates run from the date of transfer of the original asset. If you cannot complete the purchase or construction before your return is due, the next section explains what to do with the money in the meantime.
05The Capital Gains Account Scheme
You will rarely finish buying or building a house by the time your return is due. If the money is not yet reinvested by the due date for filing your return, you must park it in a Capital Gains Account Scheme (CGAS) account with a designated bank to keep the exemption alive.
- Open the CGAS account before the ITR due date and deposit the unused amount.
- Use the deposit only to buy or construct the house within the time limit.
- If any amount is left unused at the end of the window, it becomes taxable as capital gain in that later year.
Skipping the CGAS step, and simply keeping the money in a normal account, is a frequent reason the exemption is disallowed even when the taxpayer did eventually buy a house.
06The exemption cap and lock-in traps
Two further rules catch people out.
The exemption cap
There is an upper limit on the cost of the new house that can be counted for the exemption, so a very large gain is not fully sheltered by an equally large house purchase.
The lock-in
The new house comes with a lock-in. If you sell it within three years, the exemption you claimed is withdrawn and the gain becomes taxable. Under section 54F there is an extra condition: you must not buy or build another house (beyond the new one) within the specified period, or the exemption is reversed.
Because these rules interact, the safest approach is to decide the section, the amount and the timeline before you sell, not after.
07How 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.
Choosing between section 54 and 54F, computing the exempt portion, meeting the CGAS deadline and keeping within the cap and lock-in rules is where capital gains filings go wrong, and the tax at stake is usually large. The income tax portal lets you file yourself, but it will not tell you whether you picked the right section or reinvested enough.
A verified chartered accountant from a network of 300+ partner CAs can work out the exempt amount, confirm which section applies, flag the CGAS and time-limit steps, and file the return at a fixed, published price (capital gains ITR filing starts from Rs 2,499, see the page), with a Claw reviewer checking it before submission. A free 20-minute call lets you explain the sale first. 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.
08Frequently asked questions
What is the difference between section 54 and 54F?
Section 54 applies when you sell a residential house and reinvest the capital gain in another house. Section 54F applies when you sell any other long-term asset, such as shares, land or gold, and reinvest the net sale consideration (the whole sale value) in a house. Under section 54 you reinvest only the gain; under section 54F you reinvest the entire sale value for a full exemption.
Can I claim section 54F if I already own a house?
You can claim section 54F only if you do not own more than one residential house (other than the new one you are buying) on the date of transfer. If you own two or more houses already, section 54F is not available. Section 54 does not have this restriction, because it applies to the sale of a house in the first place.
What happens if I only reinvest part of the money?
Under section 54, the part of the gain you reinvest is exempt and the rest is taxable. Under section 54F, the exemption is proportionate: the exempt gain equals the capital gain multiplied by the amount reinvested divided by the net sale consideration. So under section 54F, reinvesting only part of the sale value gives you only a part of the exemption.
What is the Capital Gains Account Scheme?
If you have not finished buying or building the new house by the due date for filing your return, you must deposit the unused amount in a Capital Gains Account Scheme (CGAS) account with a designated bank to keep the exemption. You then use that money for the house within the time limit. Any amount left unused at the end of the window becomes taxable as capital gain in that later year.
Is there a limit on the section 54 and 54F exemption?
Yes. There is an upper limit on the cost of the new house that can be counted for the exemption, so a very large gain cannot be fully sheltered by an equally large purchase. The cap and its start year were set by a recent Finance Act, so confirm the current figure for your assessment year before relying on it.
Can I sell the new house after claiming the exemption?
Not within three years. If you sell the new residential house within three years of buying or constructing it, the exemption you claimed is withdrawn and that amount becomes taxable. Under section 54F there is an additional condition about not buying or building another house within a specified period, failing which the exemption is also reversed.