Section 54 of Income Tax Act lets an individual or HUF who sells a residential house at a long term gain pay no tax on that gain, to the extent it is put into another house in India within the time allowed. Buy within one year before or two years after the sale, or build within three years, and the reinvested part of the gain is exempt, subject to a ₹10 crore cap.
Three related sections widen the idea. Section 54F covers the sale of any other long term asset, such as shares or a plot, when the money goes into a house. Section 54EC covers gains from land or buildings put into specified bonds. Section 54B covers farm land replaced with farm land. These are part of the wider capital gains rules.
Quick facts
Who can claim 54 and 54F
Individuals and HUFsAsset sold under 54
Long term residential house (held over 24 months)Time to buy
1 year before or 2 years after; build within 3 yearsCap on new house cost
₹10 crore (54 and 54F)54EC bonds
Within 6 months, up to ₹50 lakh, 5 year lock inUnused money by return due date
Park it in the Capital Gains Account SchemeLock in on new house
3 years, or the exemption is reversed
Section 54, 54F, 54EC and 54B compared
| Section | Asset sold | Where money goes | Exempt amount |
|---|---|---|---|
| 54 | Long term residential house | One house in India (two, once in a lifetime, if gain is up to ₹2 crore) | Gain, up to the cost of the new house |
| 54F | Any long term asset other than a house | One residential house in India | Gain × amount invested ÷ net sale price |
| 54EC | Long term land or building | Specified bonds within 6 months | Amount invested, up to ₹50 lakh |
| 54B | Agricultural land used for farming for 2 years | Other agricultural land within 2 years | Gain, up to the cost of new land |
Section 54B also covers a short term gain, because the test is two years of farming use, not the holding period.
Section 54 of income tax act: the conditions
- The seller must be an individual or HUF. A company or firm cannot claim it.
- The house sold must be long term: held for more than 24 months.
- The new house must be in India. A flat abroad does not qualify.
- Buying counts if it happens one year before or two years after the date of transfer; construction must finish within three years.
- Exemption is capped where the new house costs more than ₹10 crore; anything above that is ignored.
- If the new house is sold within three years, the exempt gain is taken back by reducing its cost when that later sale is taxed.
Section 54F of income tax act with example
Section 54F is for people who sell something other than a house, such as listed shares, gold, or a commercial plot. Two extra conditions apply. On the date of sale, you must not own more than one residential house apart from the new one, and you must not buy another house within two years or build one within three. The exemption is proportional because the whole sale price, not just the gain, is expected to be reinvested.
Selling shares to buy a flat. In FY 2025-26 Meera sells listed shares held for six years. Net sale price ₹80,00,000; long term gain ₹30,00,000. She buys a flat for ₹60,00,000 within the time limit.
- Exempt gain = ₹30,00,000 × 60,00,000 ÷ 80,00,000 = ₹22,50,000.
- Taxable gain = ₹7,50,000.
- Less the yearly ₹1,25,000 that is free under 112A: ₹6,25,000.
- Tax at 12.5% = ₹78,125; cess 4% = ₹3,125. Total ₹81,250.
Had she invested the full ₹80 lakh, the whole gain would have been exempt.
Worked example for a house sale under section 54
Flat bought in FY 2016-17 for ₹60,00,000, sold in FY 2025-26 for ₹1,20,00,000. New flat bought for ₹50,00,000. Because the flat was bought before 23 July 2024, a resident individual may pay the lower of two computations.
- Option A, 12.5% without indexation: gain ₹60,00,000; less ₹50,00,000 exempt under section 54 = ₹10,00,000 taxable; tax ₹1,25,000 plus cess.
- Option B, 20% with indexation: indexed cost = ₹60,00,000 × 376 ÷ 264 = ₹85,45,455; gain ₹34,54,545; the ₹50,00,000 new flat covers all of it, so taxable gain is nil.
- The seller picks Option B and pays no tax on the sale.
Sec 54 of income tax act does not itself decide the tax rate; the rate comes from the capital gains rules. Try the slab part of your income in the income tax calculator. The index numbers are the cost inflation index for FY 2016-17 (264) and FY 2025-26 (376).
Sec 54EC of income tax act: the bonds route
If you sell land or a building and do not want another house, section 54EC lets you put the gain into specified long term bonds issued by notified public sector bodies. The investment must be made within six months of the sale, the total cannot exceed ₹50 lakh across the year of sale and the next year, and the bonds are locked in for five years. Interest on the bonds is taxable each year. Gains on shares or gold cannot use this route; for those, 54F is the option.
Capital Gains Account Scheme and filing
Few people buy or finish building a house before their return is due. The law handles this through the Capital Gains Account Scheme. Deposit the unused gain (for 54) or sale money (for 54F) in this account at an authorised bank branch before the return due date under section 139(1), and claim the exemption in that return. Withdraw only to pay for the house. Money not used within the two or three year window becomes taxable in the year the window closes. Check the return due date for your case before the deposit.
Report the sale and the claim in the capital gains schedule of ITR-2, or ITR-3 if you also have business income.
What changes for sales from tax year 2026-27
Sales made on or after 1 April 2026 fall under the Income-tax Act, 2025. The reinvestment reliefs for houses, bonds and farm land carry over in the new Act, with new section numbers. A sale in FY 2025-26 is still claimed under sections 54, 54F, 54EC or 54B in the return for AY 2026-27, even if the new house is bought after 1 April 2026.
Mistakes with 54 and 54F claims
| Problem | Remedy |
|---|---|
| Booking a flat but missing the CGAS deposit before the return due date | Deposit before the due date, or the gain is taxed now |
| Owning two houses besides the new one and claiming 54F | 54F is not available; consider 54EC if the asset was land or a building |
| Selling the new house within three years | Expect the old exemption to be added back on that sale |
| Investing ₹60 lakh in 54EC bonds | Only ₹50 lakh counts |
Reinvestment exemptions turn on dates and documents, and this page gives the general rule only. Before you sell or buy, have a chartered accountant look at your papers, and use the income tax website for the current forms.
Sources we checked
- Income-tax Act, 1961, sections 54, 54B, 54EC and 54F
- Finance Act, 2023 (₹10 crore cap)
- Capital Gains Accounts Scheme, 1988
- CBDT notification on cost inflation index
Frequently asked questions
What relief does section 54 of income tax act give?
Section 54 exempts a long term gain on selling a residential house when the gain is reinvested in another house in India within the time limits. Only individuals and HUFs can claim it.
What is the difference between section 54 and 54F?
Section 54 is for selling a house; the gain must be reinvested. Section 54F is for selling any other long term asset; the net sale price must be reinvested, and the exemption is proportional if less is invested.
How much can I invest under section 54EC of the Income Tax Act?
Up to ₹50 lakh in specified bonds, within six months of selling land or a building. The bonds are locked in for five years.
Who can claim section 54B of income tax act?
An individual or HUF selling agricultural land that they or their parents used for farming in the two years before the sale, who buys other farm land within two years.
Can I claim section 54 for two houses?
Once in a lifetime, if the long term gain does not exceed ₹2 crore, you may buy two houses in India. Otherwise only one house qualifies.