What is section 54 exemption?
Also called: Section 82 (Income-tax Act 2025), capital gains exemption on house, Capital Gains Account Scheme
Section 54 lets you avoid tax on the long-term gain from selling a house if you put the gain into another residential house in India within set time limits. Under the Income-tax Act, 2025 the same relief is now Section 82.
It's available only to individuals and HUFs, and only when what you sold was a residential house (including the land under it) held long-term. The new house has to be bought within one year before or two years after the sale, or constructed within three years. Only the capital gain has to be reinvested, not the full sale price. If you reinvest less than the gain, the unused part is taxed.
The exemption is capped at ₹10 crore. Once in a lifetime, if the gain is ₹2 crore or less, you can split it across two houses instead of one.
Timing trips people up. If you've not bought or built by the due date of your income tax return for the year of sale, deposit the unused amount in the Capital Gains Account Scheme at an authorised bank branch before that due date. Withdraw from it only to pay for the new house. Whatever is still unused at the end of the three years becomes taxable that year.
The new house has a three-year lock-in. Sell it inside that period and the earlier exemption is reversed by reducing its cost for computing the gain. Buying abroad doesn't qualify, and the new house should be in your name; tribunals have allowed a spouse's name in some cases, but it's safer not to rely on it. For selling a plot or any asset other than a house, the matching relief is the old Section 54F, now Section 86, which requires reinvesting the net sale price, not just the gain.
A Chandigarh couple sells their house with a long-term gain of ₹70 lakh and books a ₹85 lakh flat in Mohali within 18 months. The whole ₹70 lakh gain is exempt under Section 82 (the old 54), provided they hold the new flat for at least three years.
Sellers plan to buy "later" but miss depositing the gain in the Capital Gains Account Scheme before the return due date. Without that deposit, the exemption can be denied even if the house is bought within two years.
Questions people ask about section 54 exemption
Can I claim Section 54 for an under-construction flat?
Yes. Booking an under-construction flat counts as construction, so the three-year window applies, and completion within that period matters.
Can I claim both Section 54 and 54EC on the same sale?
Yes. You can put part of the gain into a new house under Section 82 and part into bonds under Section 85, as long as the combined amount doesn't exceed the gain.