Which exemption you claim depends on one thing: what you sold. If the long-term asset you sold was a residential house, the claim is under section 54. If it was anything else (a plot of land, a shop, gold, listed shares, mutual fund units), the claim is under section 54F. Both sections reward buying or building a residential house in India, but they measure the exemption differently. Section 54 asks you to reinvest only the capital gain. Section 54F asks you to reinvest the whole net sale proceeds, and cuts the exemption in proportion if you do not.
Those section numbers belong to the Income-tax Act, 1961, which still governs sales made up to 31 March 2026 (FY 2025-26, returns for AY 2026-27). Sales from 1 April 2026 fall in tax year 2026-27 under the Income-tax Act, 2025. There the same two reliefs continue as section 82 of the Income-tax Act, 2025 (house sold, house bought) and section 86 of the Income-tax Act, 2025 (other asset sold, house bought). The conditions are nearly word for word the same; only the cross-references change.
Start with the asset you sold, not the house you bought
Both reliefs are open only to an individual or a Hindu undivided family (HUF). A company, firm or LLP selling property cannot claim either. Both also need a long-term gain. For land and buildings that means the property was held for more than 24 months before the sale; a flat sold after 20 months gives a short-term gain and neither section helps.
From there the sorting is simple:
- Section 54 / section 82: the asset sold was a residential house (with the land appurtenant to it) whose income is chargeable under the head "Income from house property".
- Section 54F / section 86: the asset sold was any long-term capital asset that is not a residential house. Commercial property, a vacant plot, agricultural land that is a capital asset, unlisted shares, listed equity, jewellery and bonds all come here.
The department's own section 54 tutorial on the income tax website gives an illustration of a person who sells gold and buys a house: no relief under section 54, but a possible claim under 54F. The same tutorial also confirms that buying a shop with the gain from a house does not qualify, because the new asset must be a residential house.
How the two sections compare
The table sets out the differences that most often change the tax bill. Section numbers are given for both Acts.
| Point | House sold: section 54 (1961) / section 82 (2025) | Other asset sold: section 54F (1961) / section 86 (2025) |
|---|---|---|
| What you must reinvest | The capital gain | The net sale consideration (sale price less transfer expenses) |
| Exemption if you reinvest less | Exemption equals the amount invested; balance gain is taxed | Gain × cost of new house ÷ net consideration |
| Time to buy or build | Buy 1 year before or 2 years after the sale; build within 3 years after | Same |
| Ownership test on the sale date | None | No relief if you already own more than one residential house (other than the new one) |
| Two-house option | Yes, once, if the gain is not more than ₹2 crore | No; one house only |
| ₹10 crore ceiling | Cost of new house above ₹10 crore ignored; deposit counted up to ₹10 crore of gain | Cost of new house above ₹10 crore ignored; deposit counted up to ₹10 crore of net consideration |
| Sale of new house within 3 years | Exemption reduces the new house's cost when you compute gain on its sale | Exempted gain becomes long-term capital gain of the year of sale |
| Buying another house later | No effect | Exempted gain becomes taxable if another house is bought within 2 years or built within 3 years |
Section 54: reinvest the gain, keep the rest
Under section 54 of the Income-tax Act, 1961, the relief is the lower of the long-term capital gain and the amount you put into the new house. Sell a flat for ₹1.2 crore with a gain of ₹45 lakh, and you need to spend only ₹45 lakh on the new house for a full exemption. The other ₹75 lakh of sale money is yours to use as you wish.
The two-house option was added by the Finance Act, 2020. Where the gain does not exceed ₹2 crore, you may buy or build two houses in India instead of one. It is a one-time choice: once used, it cannot be exercised again for the same or any later year. Section 82(5) and (6) of the 2025 Act carry the same rule, saying the option cannot be used again "for the same tax year or any other tax year". Use it only when the second house is really worth it, because a later sale of your current home will then get a one-house exemption only.
Section 54F: reinvest the whole sale price or accept a proportion
Section 54F of the Income-tax Act, 1961 works on net consideration. That is the full value of consideration received or accruing on the transfer, less expenditure incurred wholly and exclusively in connection with it. If the new house costs at least that much, the whole gain is exempt. If it costs less, only this part is exempt:
Exempt gain = capital gain × cost of new house ÷ net consideration
Many sellers apply the section 54 rule to a 54F case and overclaim. Take this illustration. Meera sells a residential plot (bare land, so not a house) on 10 August 2025 for ₹90,00,000 and pays brokerage of ₹1,00,000. Net consideration is ₹89,00,000. Assume her long-term gain after cost is ₹40,00,000. She buys a flat for ₹60,00,000 on 15 January 2026.
- Exempt gain = ₹40,00,000 × 60,00,000 ÷ 89,00,000 = ₹26,96,629
- Taxable long-term gain = ₹40,00,000 − ₹26,96,629 = ₹13,03,371
She spent more than her gain on the flat, so a section 54 reading would have shown nil tax. Under 54F she still pays tax on about ₹13 lakh, because ₹29 lakh of the sale money stayed out of the house. Had she put ₹89,00,000 or more into the flat, the full ₹40,00,000 would have been exempt.
Where the sale price is the stamp duty value rather than the agreed price, the deemed figure is what enters net consideration. Check how the stamp-duty value rule for property sold below circle rate applies before you size the reinvestment.
The ownership test that knocks out many 54F claims
Section 54F has a condition section 54 does not. On the date of sale you must not own more than one residential house apart from the new one. Owning your current home is fine. Owning your home plus a let-out flat means no 54F relief at all, however much you reinvest. The test also fails if, besides the new house, you buy another residential house within one year after the sale or build one within three years. The condition bites only where income from that other house is chargeable under "Income from house property". In the 2025 Act this sits in section 86(5).
The exemption can also be lost after it is claimed. Under section 54F(2), now section 86(6), the trigger is buying another house within two years of the sale or building one within three years. That turns the earlier exempt gain into long-term capital gain of the year in which that house is bought or built. Families planning a second flat for a child should sequence the purchases with this window in mind.
When the house is not bought by the return due date: the deposit route
You do not have to finish buying or building before you file. Whatever is not used by the time you file must go into a Capital Gains Accounts Scheme, 1988 (CGAS) account at a bank branch authorised under the scheme. For section 54 that means the unused gain; for section 54F, the unused net consideration. The deposit must be made before you file and no later than your due date under section 139(1) of the 1961 Act. Proof of the deposit goes with the return.
For a sale from 1 April 2026, the 2025 Act ties the deposit to the due date under section 263 of the Income-tax Act, 2025. Its sub-section (1) currently lists 31 July for non-audit assessees, 31 October for audit cases and companies, and 30 November for transfer pricing report cases.
The income tax tutorial is blunt about timing. A salaried seller whose due date for FY 2025-26 was 31 July 2026 and who deposited in July 2026 got the exemption. A seller who deposited in October 2026, after the due date, got none. Filing a belated return later does not cure a missed deposit date.
Here is how the clock runs in a section 54 case. Rohan sells his flat on 5 May 2025 with a long-term gain of ₹45,00,000. He has not found a new home by July, so he deposits ₹45,00,000 in a CGAS account before filing on 31 July 2026 and claims the full exemption. On 10 February 2027 he buys a flat for ₹38,00,000, paid from the account.
| Event | Date | Effect |
|---|---|---|
| Sale of old flat | 5 May 2025 | Gain of ₹45,00,000 arises in FY 2025-26 |
| CGAS deposit and return filed | By 31 July 2026 | ₹45,00,000 claimed as exempt, subject to use |
| Last date to buy with the deposit | 4 May 2027 (2 years) | Flat bought on 10 February 2027 for ₹38,00,000 |
| Last date to build with the deposit | 4 May 2028 (3 years) | Not used |
| Unused balance | When the 3 years end in May 2028 | ₹7,00,000 taxed as long-term capital gain of FY 2028-29 |
Had Rohan sold a plot instead and claimed 54F, buying a ₹38,00,000 flat from ₹1,20,00,000 of net consideration would have protected only ₹45,00,000 × 38 ÷ 120 = ₹14,25,000 of the gain. The difference between the two sections is that large.
Money withdrawn from a CGAS account must go only into the purchase or construction of the house. The tutorial gives the example of ₹6,00,000 withdrawn and spent on a car, which is taxed as long-term capital gain in the year of withdrawal.
The ₹10 crore ceiling on high-value homes
From AY 2024-25 (sales on or after 1 April 2023), the Finance Act, 2023 capped both reliefs. The income tax page listing the capital gains exemptions records that the cost of the new asset above ₹10 crore is ignored, and that deposits under the scheme are counted only up to ₹10 crore. Sections 82(7)-(8) and 86(8)-(9) of the 2025 Act repeat the cap.
For section 54 the effect is direct. The tutorial's illustration has a gain of ₹13 crore and a new house costing ₹14 crore: the exemption stops at ₹10 crore and ₹3 crore of gain is taxed. In a 54F case the cap works inside the formula. Say net consideration is ₹15 crore, the gain is ₹12 crore and the new house costs ₹12 crore. The cost is counted at ₹10 crore, so the exempt gain is ₹12 crore × 10 ÷ 15 = ₹8 crore and ₹4 crore remains taxable.
The e-filing utility enforces the 54F limit: validation rule 480 for ITR-3 for AY 2026-27 rejects a section 54F deduction above ₹10 crore in Table D of Schedule CG.
If the new house is sold within three years
Both sections take the benefit back, but by different routes. Under section 54, where the gain exceeded the cost of the new house, its cost is taken as nil when you sell it; where the gain was lower, its cost is reduced by the gain that was exempted. Because a house sold within 24 months is a short-term asset, the result usually appears as a larger short-term gain on that sale. Under section 54F, the gain exempted earlier is simply charged as long-term capital gain of the year in which the new house is sold, on top of whatever gain the new house itself produces.
A planned resale also changes your advance tax position in the year of sale; advance tax instalments must include capital gains even when salary TDS is running. Where the clawback year also has capital losses, the set-off rules for short-term and long-term capital losses decide which loss can absorb the revived gain.
Points to settle before you sign the purchase agreement
- Confirm the holding period of the asset sold (more than 24 months for land and buildings) and whether it was a residential house. That single fact picks the section.
- For a 54F claim, list every residential house you, the individual or HUF claiming relief, own on the sale date. Two or more existing houses rule the claim out.
- Work out the reinvestment figure: the gain for section 54, the net consideration for section 54F. Use the full sale value, not the amount received after the buyer's TDS; the 1% the buyer deducts under the TDS rules for property purchases is still part of your sale consideration.
- Check that the new house is in India and will be bought within the window, or completed within three years if you are building.
- Diarise your return due date and open the CGAS account before it if any amount is still unspent.
- Pick a return form that carries capital gains: ITR-2, or ITR-3 if you also have business income (see the comparison of ITR forms). Report the claim in Schedule CG with the date of sale, the new house's cost and the deposit details.
For a sale on or after 1 April 2026, write the claim under section 82 or section 86 of the Income-tax Act, 2025 and refer to the forms notified for tax year 2026-27. Mixing 1961 Act section numbers into a 2025 Act claim, or the reverse, is an avoidable source of mismatch notices.
