What is the Section 54 exemption?
Reviewed by Ranga & Company
Section 54 exemption: Section 54 exempts long-term capital gains from selling a residential house if the gain is reinvested in another residential house in India within the allowed time, up to ₹10 crore.
At a glance
- Who
- Individuals and HUFs
- Sold
- A residential house held for more than 24 months
- Reinvest in
- A residential house in India
- Timing
- Buy 1 year before or 2 years after; construct within 3 years
- Cap
- ₹10 crore of exemption
- Two houses
- Allowed once in a lifetime if the gain is up to ₹2 crore
Sections 54, 54F and 54EC compared
| 54 | 54F | 54EC | |
|---|---|---|---|
| You sold | A residential house | Any other long-term asset (e.g. a plot) | Land or building |
| Invest in | A residential house | A residential house | NHAI, REC, PFC or IRFC bonds |
| Amount to invest | The capital gain | The net sale proceeds | The gain, up to ₹50 lakh |
| Deadline | 1 yr before / 2 yrs after (3 to build) | Same as 54 | 6 months from sale |
Capital Gains Account Scheme
If you haven't bought or built the new house by your ITR due date, deposit the unused gain in a Capital Gains Account Scheme (CGAS) account at a bank before that date. Unused amounts after the time limit become taxable.
The 3-year lock-in
If you sell the new house within 3 years, the exemption is reversed: the earlier gain is reduced from the cost of the new house when computing tax on its sale.
Common mistakes
- Missing the CGAS deposit before the ITR due date
- Claiming 54 on a plot sale; that needs 54F with the full proceeds reinvested
- Buying the new house in a spouse's sole name without advice; it can complicate the claim
Frequently asked questions
Can I buy two houses under section 54?
Once in a lifetime, if the long-term capital gain is up to ₹2 crore, you can invest in two residential houses.
Is there a limit on section 54 exemption?
Yes. The exemption is capped at ₹10 crore of capital gains.
Can I claim section 54 for a house bought abroad?
No. The new house must be in India.
Related terms
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