Section 54 exempts the long-term capital gain on the sale of a residential house when you invest that gain in another residential house in India. The exemption is the lower of the gain and the cost of the new house, capped at Rs 10 crore.
Below: who can claim, the conditions and time limits, four worked examples, the two-house option, the Capital Gains Account Scheme and how Section 54 differs from 54F and 54EC.
What Is Section 54 of the Income Tax Act?
Section 54 is the provision of the Income Tax Act, 1961 that exempts the long-term capital gain on selling a residential house when you buy or build another one. Only the gain needs to be reinvested, not the whole sale price.
| Particulars | Details |
|---|---|
| Who can claim | Individuals and HUFs, including non-residents |
| Asset sold | Residential house held for more than 24 months |
| Reinvestment | One residential house in India, bought or constructed |
| Exemption | Lower of the long-term gain and the cost of the new house |
| Cap on new house cost | Rs 10 crore |
| Two houses | Once in a lifetime, if the gain is up to Rs 2 crore |
| Tax regime | Available under both old and new regimes |
Calculate your capital gain first
Enter the sale price, cost and holding period to get the gain that Section 54 can exempt.
Who Can Claim Exemption Under Section 54?
Individuals and Hindu Undivided Families can claim Section 54, and non-residents are eligible as well. Firms, LLPs and companies cannot.
The asset sold must be a residential house, or land appurtenant to it, whose income is taxed under Income from House Property. A shop, office or plot of land is not covered and falls under Section 54F.
Conditions to Claim Section 54
You must have held the house for more than 24 months and invest the gain in one residential house in India within the time limits. All the conditions apply together.
Section 54 Time Limits for Buying or Building
You can buy the new house 1 year before the sale or up to 2 years after it, and you get 3 years after the sale to construct one. Miss the window and the exemption is lost.
| Route | Time Limit | Measured From |
|---|---|---|
| Purchase before the sale | 1 year before | Date of transfer |
| Purchase after the sale | 2 years after | Date of transfer |
| Construction | 3 years after | Date of transfer |
| Deposit in CGAS if unspent | On or before the return due date | Section 139(1) due date |
In a compulsory acquisition, the three years run from the date you receive the compensation.
How the Section 54 Exemption Is Calculated
The exemption is the lower of the long-term capital gain on the old house and the amount spent on the new house, capped at Rs 10 crore. Any gain above that is taxable.
| No. | Long-Term Gain | Cost of New House | Exempt Gain | Taxable Gain |
|---|---|---|---|---|
| 01 | Rs 7 crore | Rs 12 crore | Rs 7 crore | Nil |
| 02 | Rs 12 crore | Rs 14 crore | Rs 10 crore | Rs 2 crore |
| 03 | Rs 11 crore | Rs 9 crore | Rs 9 crore | Rs 2 crore |
| 04 | Rs 15 crore | Rs 13 crore | Rs 10 crore | Rs 5 crore |
Section 54 Examples With Tax Calculation
This example sells a house for Rs 1.8 crore and shows the tax with and without the exemption. It assumes no other income and ignores surcharge and cess.
| No. | Particulars | Amount (Rs) |
|---|---|---|
| 01 | Sale price | 1,80,00,000 |
| 02 | Cost of acquisition (no indexation) | 60,00,000 |
| 03 | Long-term capital gain | 1,20,00,000 |
| 04 | Invested in a new house | 90,00,000 |
| 05 | Section 54 exemption: lower of gain and investment | 90,00,000 |
| 06 | Taxable long-term gain | 30,00,000 |
| 07 | Tax at 12.5% on the taxable gain | 3,75,000 |
| 08 | Tax at 12.5% with no Section 54 claim | 15,00,000 |
A resident individual or HUF who bought the house before 23 July 2024 can instead choose 20% with indexation, and pays whichever tax is lower. Here the indexed cost is Rs 74,95,017, the taxable gain after the exemption is Rs 15,04,983 and the tax is Rs 3,00,997, which is lower than Rs 3,75,000.
The cost inflation index guide explains how indexed cost is worked out.
Can You Buy Two Houses Under Section 54?
Yes, once in a lifetime, if the long-term capital gain is Rs 2 crore or less. The exemption then covers both houses, up to the amount of the gain.
| No. | Particulars | Amount (Rs) |
|---|---|---|
| 01 | Long-term capital gain | 1,60,00,000 |
| 02 | First house bought | 70,00,000 |
| 03 | Second house bought | 80,00,000 |
| 04 | Total invested | 1,50,00,000 |
| 05 | Exemption: lower of gain and investment | 1,50,00,000 |
| 06 | Taxable long-term gain | 10,00,000 |
If you use this option once, you cannot use it again for a later sale. Choose it only when two houses make sense for you.
Section 54 Rs 10 Crore Cap
The cost of the new house counted for Section 54 is capped at Rs 10 crore, which applies from FY 2023-24. Spending more than that on the house earns no extra exemption.
A gain of Rs 12 crore with a new house costing Rs 14 crore exempts Rs 10 crore and leaves Rs 2 crore taxable, as row 02 of the table above shows.
Can an NRI Claim Section 54?
Yes. An NRI who sells a residential house in India and buys or builds a house in India within the time limits can claim the exemption on the same terms as a resident.
The house must have been held for more than 24 months, and the new house must be in India. The 20% indexed option for old property is for residents only, so an NRI pays 12.5% on the taxable gain.
Capital Gains Account Scheme (CGAS) and Section 54
The Capital Gains Account Scheme lets you deposit unspent gain in a designated bank account so the exemption survives while you buy or build. The deposit must be made on or before the due date for filing your return under Section 139(1).
| Point | Rule |
|---|---|
| Governing scheme | Capital Gains Accounts Scheme, 1988 |
| Deposit deadline | On or before the due date under Section 139(1) |
| What counts | Amount already spent plus the amount deposited |
| Where to open | Public sector banks and private or small finance banks notified under the scheme |
| Payment modes | UPI, NEFT, RTGS, debit and credit cards are accepted per the latest notification |
| Unused money | Taxed as long-term capital gain in the year the 3-year period ends |
Confirm that your branch handles the scheme before you visit, because not every branch processes the deposit.
When the Section 54 Exemption Is Withdrawn
The exemption is withdrawn if you sell the new house within 3 years of buying or completing it. The exempted gain then becomes taxable in the year of that sale.
| No. | Particulars | Amount (Rs) |
|---|---|---|
| 01 | Gain on the first house, June 2023 | 25,00,000 |
| 02 | New house bought, October 2023 | 40,00,000 |
| 03 | Exemption claimed on the first house | 25,00,000 |
| 04 | New house sold, January 2025 | 55,00,000 |
| 05 | Cost of the new house after the exemption: 40,00,000 less 25,00,000 | 15,00,000 |
| 06 | Gain on the sale of the new house | 40,00,000 |
The new house was held for about 15 months, so the Rs 40 lakh is a short-term gain taxed at slab rates. A sale after 24 months would make it long-term instead.
Difference Between Section 54, 54F and 54EC
Section 54 applies when you sell a house, Section 54F when you sell any other long-term asset, and Section 54EC when you sell land or a building and invest in specified bonds. Pick by the asset you sold.
| Basis | Section 54 | Section 54F | Section 54EC |
|---|---|---|---|
| Asset sold | Residential house | Any long-term asset except a house | Land or building |
| Reinvest in | Residential house | Residential house in India | Specified bonds |
| Amount to reinvest | The capital gain | The full net sale price | The capital gain |
| If you reinvest less | Exempt up to the amount invested | Proportionate exemption | Exempt up to the amount invested |
| Limit | Rs 10 crore on cost of new house | Rs 10 crore on cost of new house | Rs 50 lakh per financial year |
| Time to reinvest | 1 year before, 2 years after, 3 to build | 1 year before, 2 years after, 3 to build | 6 months from the sale |
| Two houses | Once, if the gain is up to Rs 2 crore | Not allowed | Not applicable |
If the gain is larger than the cost of the new house, you can put the balance into specified bonds under Section 54EC within 6 months of the sale. The Section 10 exemptions guide covers the income exemptions that sit outside capital gains.
How to Claim the Section 54 Exemption
You claim Section 54 in the capital gains schedule of your income tax return for the year of sale. Keep the sale deed, the purchase or construction papers and any CGAS statements.
Confirm the holding period
Check that you held the house for more than 24 months.
Compute the gain
Deduct cost and transfer expenses from the sale price.
Buy or build within the limit
Complete the purchase within 1 year before or 2 years after the sale, or the construction within 3 years.
Deposit any balance in CGAS
If the house is not ready by the return due date, deposit the unspent gain before that date.
Report it in the ITR
Show the gain and the exemption in the capital gains schedule when you file on the e-Filing portal.
The ITR filing last date page lists the deadline that also fixes your CGAS deposit date.
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Frequently Asked Questions: Section 54
Disclaimer: This page reflects the Income Tax Act, 1961 for sales up to 31 March 2026, and the figures are illustrations that assume no other income. Capital gains rules change with each Finance Act, so confirm the current position on the Income Tax e-Filing portal or with a Chartered Accountant before you invest. This is general information and not tax advice.