Income Tax · Capital Gains Exemption
Sec 54f Of Income Tax Act (India, 2026)
Section 54F is one of the most useful capital-gains exemptions for ordinary taxpayers, because it covers the long-term gain on almost any asset, such as shares, gold or land, when you put the proceeds into a residential house. But it comes with strict conditions, and missing one can cost you the whole exemption. This explainer sets out what section 54F does, who can claim it, the timelines, and the traps to avoid.
- What it does: exempts long-term capital gains on any asset other than a house, when the net sale proceeds go into one residential house in India.
- Who: individuals and HUFs only; not companies or firms.
- Compared against net consideration: full exemption needs the entire net sale value reinvested; partial investment gives proportionate exemption.
- Timelines: buy within 1 year before or 2 years after sale, or construct within 3 years; park unused funds in a CGAS account before the return due date.
- Ownership limit: you must not own more than one other residential house, and there is a cap on the qualifying investment.
- Lock-in: selling the new house too soon, or buying another, can reverse the exemption.
01What section 54F exempts
Section 54F lets an individual or Hindu Undivided Family (HUF) claim exemption from long-term capital gains on the sale of any asset that is not a residential house, if the net sale consideration is invested in buying or building one residential house in India.
So it typically applies when you sell shares, mutual fund units, gold, jewellery or a plot of land (held long term) and use the money to buy a home. The gain on the original asset can be exempt, fully or partly, depending on how much of the proceeds you reinvest.
Net consideration, not just the gain
Section 54F is different from some other exemptions because the comparison is with the net sale consideration (the whole sale value, less transfer expenses), not only the capital gain. To get full exemption, you generally have to invest the entire net consideration, not just the profit.
02The core conditions
All of these generally have to be satisfied:
- The seller is an individual or HUF. Companies and firms cannot claim 54F.
- The asset sold is long-term and is not a residential house.
- The proceeds go into one residential house in India (the law has limited the exemption to one house).
- You do not own more than one residential house (other than the new one) on the date of sale, and you do not buy or build another (beyond the new one) within the specified period.
- The investment is within the prescribed time windows (see below).
There is also a cap on the investment amount that can qualify for the exemption, introduced in recent years, so a very large reinvestment is exempt only up to the notified ceiling. Confirm the current cap for your assessment year.
03How the exemption is calculated
If you invest the entire net sale consideration in the new house, the whole long-term capital gain is exempt. If you invest only part of it, the exemption is proportionate.
The proportionate formula is broadly:
Exempt gain = Capital gain multiplied by (amount invested in the new house divided by net sale consideration)
So if your net sale consideration was Rs 50,00,000, your long-term gain was Rs 20,00,000, and you invested Rs 40,00,000 in the new house, the exempt portion would be 20,00,000 multiplied by (40,00,000 divided by 50,00,000), that is Rs 16,00,000, leaving Rs 4,00,000 taxable. The exact outcome depends on the investment cap and your figures, so have them checked.
04Timelines and the capital gains account
The reinvestment has to happen within set windows:
- Purchase: buy the new house within one year before, or two years after, the date of sale.
- Construction: complete construction of the new house within three years after the date of sale.
If you have not invested the money by the due date for filing your return, you must deposit the unutilised amount in a Capital Gains Account Scheme (CGAS) account with a bank before that due date, and then use it for the purchase or construction within the windows. Money not used in time becomes taxable later.
05When the exemption is withdrawn
The exemption is not final the moment you claim it. It can be withdrawn and taxed later if, within the specified period:
- You sell the new residential house too soon (within the lock-in period after purchase or construction), or
- You buy or build another residential house (beyond the one you invested in) within the restricted window.
If either happens, the earlier exempt amount is generally brought to tax in the year you breach the condition. So treat the new house and your other property purchases carefully for the lock-in period.
06Section 54F vs section 54
People often mix up 54 and 54F.
| Point | Section 54 | Section 54F |
|---|---|---|
| Asset sold | A residential house | Any long-term asset other than a house |
| Reinvest in | A residential house | A residential house |
| Compared against | The capital gain | The net sale consideration |
| Ownership restriction | Lighter | Must not own more than one other house |
In short, use section 54 when you sell a house and buy a house; use section 54F when you sell something else and buy a house. For related provisions, see section 80TTB and section 139(8A) updated returns.
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.
You can claim section 54F in your own return if you are confident about the net-consideration comparison, the ownership condition, the investment cap and the CGAS timing. The reason people get it wrong is that each of those is a separate trap, and a single miss can cost the whole exemption plus interest.
With Claw Tax and Accounts ITR filing, a verified chartered accountant works out the exempt amount correctly, checks the conditions and timelines, and a Claw reviewer checks the return before it is filed, at a fixed published price. You approve the draft first.
This is not tax advice; a verified CA handles your specifics, and section references may change as the Income-tax Act 2025 replaces the 1961 Act.
08Frequently asked questions
What is section 54F of the Income Tax Act?
Section 54F exempts long-term capital gains on the sale of any asset that is not a residential house (such as shares, gold or land) if you invest the net sale consideration in buying or building one residential house in India. It is available to individuals and HUFs.
Do I have to invest the whole sale amount or just the gain?
For full exemption under section 54F you generally have to invest the entire net sale consideration, that is the whole sale value less transfer expenses, not just the capital gain. If you invest only part, the exemption is proportionate to the amount invested.
What is the time limit to reinvest under section 54F?
You can buy the new house within one year before or two years after the date of sale, or construct it within three years after the sale. If the money is not used by the return due date, deposit the unutilised amount in a Capital Gains Account Scheme account before that date and use it within the windows.
Can I claim section 54F if I already own a house?
You can, but only if you do not own more than one residential house (other than the new one) on the date of sale, and you do not buy or build another beyond the new one within the restricted period. Owning more than one other house generally disqualifies the claim.
What is the difference between section 54 and section 54F?
Section 54 applies when you sell a residential house and reinvest in a house, and the exemption is measured against the capital gain. Section 54F applies when you sell any long-term asset other than a house and reinvest in a house, and it is measured against the net sale consideration, with a stricter ownership condition.
Can the section 54F exemption be taken back later?
Yes. If you sell the new residential house within the lock-in period, or buy or build another house beyond the one you invested in within the restricted window, the earlier exempt amount is generally brought to tax in the year you breach the condition.