Section 54: Save Capital Gains Tax by Buying Another House

Short answer: Section 54 of the Income Tax Act exempts long-term capital gains on the sale of a residential house if an individual or HUF reinvests the gain in another residential house in India. You must buy within 1 year before or 2 years after the sale, or construct within 3 years. The exemption is capped at ₹10 crore from AY 2024-25. Money not reinvested before the ITR due date must be parked in the Capital Gains Account Scheme (CGAS).

Who can claim Section 54?

Only individuals and HUFs, and only on a residential house held for more than 24 months (a long-term capital asset). Companies, firms and LLPs cannot claim it. Gains on plots or commercial property fall under Section 54F instead, which needs the entire sale proceeds reinvested, not just the gain.

Conditions at a glance

Condition	Requirement
Asset sold	Residential house, held over 24 months
New asset	Residential house in India
Purchase window	1 year before to 2 years after sale
Construction window	Within 3 years of sale
Maximum exemption	₹10 crore
Lock-in	Do not sell the new house for 3 years
Two houses	Once in a lifetime, if gain is up to ₹2 crore

How to calculate the exemption

Exemption = the lower of (a) long-term capital gain and (b) amount invested in the new house. From 23 July 2024, long-term gains on property are taxed at 12.5% without indexation; for property bought before that date, resident individuals can choose 20% with indexation if it gives lower tax.

Worked example

Kavya sells a Bengaluru flat in October 2025 for ₹1.6 crore. She bought it in 2015 for ₹70 lakh. Her long-term gain (without indexation) is ₹90 lakh.

• She buys a new flat in March 2026 for ₹75 lakh.
• Exemption under Sec. 54: ₹75 lakh.
• Taxable gain: ₹15 lakh × 12.5% = ₹1,87,500 plus cess.

Without Section 54, tax would have been about ₹11.25 lakh.

What is the Capital Gains Account Scheme?

If you have not bought or built the new house by the ITR due date (usually 31 July), deposit the unused gain in a CGAS account at an authorised bank. Withdrawals must be used for the house within the time limits. Unused amounts become taxable in the year the 3-year period ends.

Selling the new house within 3 years

The exemption is taken back. The cost of the new house is reduced by the exempted amount, which raises your gain on its sale.

Section 54 vs Section 54EC

Point	Section 54	Section 54EC
Invest in	Residential house	NHAI, REC, PFC, IRFC bonds
Limit	₹10 crore	₹50 lakh
Time to invest	2–3 years	6 months
Lock-in	3 years	5 years

You can combine both. Read our Section 54EC bonds guide.

How SP & SC helps

We compute your gain under both tax options, plan the reinvestment, open CGAS where needed, and report it correctly in Schedule CG. See tax consultation.

Frequently asked questions

Can I buy a house abroad under Section 54?

No. The new house must be in India.

Can I claim Section 54 on selling a plot?

No. A plot is covered by Section 54F.

Can I buy the new house in my spouse's name?

Courts have allowed this in several cases, but it invites dispute. Buying in your own name or jointly is safer.

What if I miss the ITR deadline without a CGAS deposit?

The unreinvested amount becomes taxable.

Get a fixed-fee quote

Every situation is different, so we do not publish a one-size price. Share your documents with us and a named advisor will send a written, fixed-fee quote before any work starts. Contact SP & SC or message us on WhatsApp at +91 90356 74566. Whatever the problem you bring, we handle it end to end.