Income tax · Capital gains and property
How do the capital gains exemptions under sections 54, 54EC and 54F (now sections 82, 85 and 86) work, and what is the Capital Gains Account Scheme?
Short answer
If you sell a house and buy or build another, section 54 (now 82) exempts the long-term gain, up to the cost of the new house and ₹10 crore. Section 54F (now 86) does the same when you sell any other long-term asset and invest the net sale price in a house. Section 54EC (now 85) exempts up to ₹50 lakh of gain on land or buildings invested in specified bonds within six months. Money not used before the return due date must be parked in the Capital Gains Account Scheme.
The three exemptions
| Section 54 (now 82) | Section 54F (now 86) | Section 54EC (now 85) | |
|---|---|---|---|
| Who | Individual or HUF | Individual or HUF | Anyone |
| Asset sold | Long-term residential house | Any long-term asset other than a house (plot, shares, gold) | Long-term land or building |
| Invest in | One residential house in India (two, once in a lifetime, if the gain is up to ₹2 crore) | One residential house in India | Bonds of NHAI, REC, PFC, IRFC or other notified issuers |
| Time | Buy 1 year before or 2 years after the sale; or build within 3 years | Same | Within 6 months of the sale |
| Exemption | Gain, up to the cost of the new house | Gain × (amount invested ÷ net sale consideration) | Amount invested, up to ₹50 lakh a year |
| Cap | Cost above ₹10 crore is ignored | Same | ₹50 lakh |
| Lock-in | 3 years | 3 years, and do not buy another house within 2 years | 5 years |
Under 54F (now 86), you must not own more than one house, other than the new one, on the date of sale.
Capital Gains Account Scheme
If you have not bought or built the new house by the due date of your return, deposit the unused amount in a Capital Gains Account with an authorised bank branch before that date, and claim the exemption in the return.
- Withdraw it only to pay for the new house, within the 2- or 3-year period.
- Any amount unused at the end of that period is taxed as a capital gain of that year.
- 54EC (now 85) bonds do not use this scheme: the 6-month limit is fixed.
Losing the exemption
Selling the new house within 3 years, or the bonds within 5 years, takes back the exemption. Under 54EC (now 85), a loan against the bonds counts as a transfer.
Joint owners
Each co-owner claims the exemption on their own share of the gain, and each needs their own investment or a share in the new house. Try the numbers in our capital gains calculator.
Legal basis
- Sections 54, 54EC and 54F, Income-tax Act, 1961, now sections 82, 85 and 86, Income-tax Act, 2025
- Capital Gains Accounts Scheme, 1988
Official sources
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