Section 54F of Income Tax Act: Capital Gains Exemption on Purchase of a Residential House

Section 54F exempts the long-term capital gain on any asset except a residential house when you put the sale money into a house in India. The exemption is proportionate, so reinvesting the full net sale price exempts the full gain.

Below: who can claim, the conditions and time limits, the formula with worked examples, the Rs 10 crore cap, the Capital Gains Account Scheme and how it differs from Sections 54 and 54EC.

What Is Section 54F of the Income Tax Act?

Section 54F is the provision of the Income Tax Act, 1961 that exempts long-term capital gains when you sell an asset other than a house and buy or build a house. Shares, land, commercial property and gold all qualify, provided the gain is long-term.

Who Can Claim Exemption Under Section 54F?

Individuals and Hindu Undivided Families can claim Section 54F, and non-residents are eligible as well. Companies, firms and LLPs cannot.

The sale must be of an asset other than a residential house. If you sold a house, including a rented one, the claim moves to Section 54.

Conditions to Claim Section 54F

You must reinvest the net sale consideration in one residential house in India and own no more than one other house on the date of sale. These conditions apply together.

Section 54F Time Limits for Buying or Building

You can buy the house 1 year before the sale or up to 2 years after it, and you get 3 years after the sale to construct one. The clock starts on the date you transfer the original asset.

How to Calculate the Section 54F Exemption

The exemption is the long-term capital gain multiplied by the cost of the new house and divided by the net sale consideration. Reinvest all of the net consideration and the whole gain is exempt.

Only the proportion of the sale money that goes into the house is exempt, which is the main difference from Section 54.

Section 54F Examples With Calculations

These examples show the proportion at work for land, listed shares and a full reinvestment. Figures are illustrations and exclude surcharge and cess unless stated.

A resident individual or HUF who bought land before 23 July 2024 can instead choose 20% with indexation. On this example that gives a taxable gain of Rs 1,75,01,661 and a tax of Rs 35,00,332, which is higher, so the 12.5% route wins.

Section 54F Rs 10 Crore Cap

The cost of the new house counted for Section 54F is capped at Rs 10 crore, which applies from FY 2023-24 (AY 2024-25). Spending more than that on the house earns no extra exemption.

Capital Gains Account Scheme (CGAS) and Section 54F

The Capital Gains Account Scheme lets you deposit unspent sale proceeds in a designated bank account so the Section 54F 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).

Public sector banks such as SBI, Canara Bank and Bank of Baroda handle these accounts, and some notified private banks do as well. Confirm that your branch accepts the deposit before you travel, because not every branch processes it.

Withdraw only to pay for the house, and keep the bills. Money drawn out and not used for the house within the allowed period is taxable.

Difference Between Section 54, 54F and 54EC

Section 54 applies when you sell a house, Section 54F when you sell any other asset, and Section 54EC when you sell land or a building and invest in specified bonds. Choose by the asset you sold.

The Section 10 exemptions guide covers the income exemptions that sit outside capital gains.

When the Section 54F Exemption Is Withdrawn

The exemption is withdrawn if you sell the new house within 3 years or buy or build a second house inside the restricted window. The exempted gain then becomes taxable in the year of the breach.

LTCG Tax Rates and Holding Periods for Section 54F Assets

Long-term gains on most assets are taxed at 12.5% for sales on or after 23 July 2024, and the holding period depends on the asset. A gain must be long-term before Section 54F can apply.

The cost inflation index guide explains the indexation option available for land and buildings bought before 23 July 2024. Surcharge on long-term gains is capped at 15%, and 4% cess applies on top.

How to Claim the Section 54F Exemption

You claim Section 54F in the capital gains schedule of your income tax return for the year of sale. Keep the sale deed, the purchase or construction documents and any CGAS statements.

The ITR filing last date page lists the deadline that also fixes your CGAS deposit date.

Section 54F Case Law on Owning Multiple Floors

The Delhi High Court has held that owning several floors of one building does not mean owning several houses for Section 54F. The ruling is PCIT v. Lata Goel, decided in 2025.

The Assessing Officer had treated a basement and a second floor as two houses and denied the exemption. The Court disagreed, relying on earlier decisions including CIT v. Gita Duggal, and treated the floors as one residential house.

Section 86 of the Income-tax Act, 2025

The Income-tax Act, 2025 carries the Section 54F exemption in Section 86, and it applies from 1 April 2026. Sales up to 31 March 2026 are still reported under Section 54F of the 1961 Act.

Frequently Asked Questions: Section 54F