Quick answer: The section 54f exemption lets an individual or HUF save long-term capital gains tax when the sale money from shares, funds, gold or a plot is reinvested in one residential house in India. You must reinvest the full sale amount, own no more than one other house on the sale date, and buy within two years or build within three years.
You sold shares, mutual fund units, gold or a plot of land at a profit. The profit is a long-term capital gain, and tax on it can run into lakhs. There is a legal way to cut that tax to zero: use the sale money to buy a house. That is what the section 54f exemption does.
In the old Income-tax Act, 1961, this relief was Section 54F. Under the Income-tax Act, 2025, which governs sales made on or after 1 April 2026, it is Section 86. The substance of the rule is largely unchanged. If your sale happened before 1 April 2026, the old provisions still govern that transaction, including a reinvestment window that is still running.
What is the Section 54F exemption?
Section 54F gives an exemption from long-term capital gains tax (LTCG) when you sell a long-term asset that is not a residential house and you reinvest the sale money in a residential house in India.
Assets that can qualify include listed shares, equity mutual fund units, gold and a plot of land. Only individuals and Hindu Undivided Families (HUFs) can claim it. Companies, firms and trusts cannot. Both residents and non-resident Indians can claim it, but the new house must be in India.
Two facts decide most claims, so keep them in mind from the start. First, the exemption is capped: since FY 2023-24, only the first Rs 10 crore of the new house’s cost counts, under a cap introduced by the Finance Act, 2023. Second, the tax rate on the gain that remains taxable is 12.5% without indexation for most assets, plus 4% health and education cess. That 12.5% rate came with the July 2024 changes to capital gains tax.
Section 54 vs Section 54F: what is the difference?
This is the mix-up that costs people money. Section 54 and Section 54F sound alike, but they cover different sales.
Section 54 (now Section 82 under the 2025 Act) applies when you sell a residential house and buy another house. You only need to reinvest the gain, and there is no limit on how many houses you already own.
Section 54F (now Section 86) applies when you sell any other long-term asset and buy a house. You must reinvest the entire net sale consideration — the full sale money after transfer expenses — not just the profit. And you must not own more than one residential house, other than the new one, on the date of sale.
| Rule | Section 54 (house to house) | Section 54F (other asset to house) |
|---|---|---|
| Asset sold | A residential house | Any long-term asset other than a house |
| What must be reinvested | The capital gain | The entire net sale consideration |
| Exemption amount | The gain, up to the amount reinvested | Proportionate: LTCG × (amount invested ÷ net sale consideration) |
| Houses you may already own | No limit | At most one, other than the new house |
| Cap on new house cost | Rs 10 crore | Rs 10 crore |
A plot of land is a common trap here. A plot on its own is not a house, so selling a plot falls under Section 54F, not Section 54. That means the full sale money must be reinvested, and the one-house rule applies.
How much money must you reinvest under Section 54F?
All of it. That single point is where most 54F claims go wrong.
First, work out the net sale consideration: the sale price minus expenses made only for the transfer, such as brokerage and registration charges. Then work out the long-term capital gain: net sale consideration minus the cost of buying the asset and any cost of improving it.
The exemption formula is:
Exempt amount = LTCG × (amount invested in the new house ÷ net sale consideration)
If you invest the full net consideration, the whole gain is exempt. If you invest half of it, only half of the gain is exempt. The rest stays taxable.
What are the deadlines for buying or building the new house?
You have three windows, and missing them loses the exemption:
- Buy a house: within one year before the sale, or within two years after the sale.
- Build a house: construction must be completed within three years after the sale.
Note the word “completed” for construction. Starting construction is not enough. Keep the completion certificate and payment records, because the tax department can ask for them.
Also check that your asset counts as long-term before you rely on 54F. As a broad guide for sales on or after 23 July 2024, listed shares and equity fund units need a holding period of more than 12 months, while land, buildings and gold need more than 24 months. If the asset counts as short-term, Section 54F cannot help at all. Some debt-oriented funds are now treated as short-term no matter how long you held them, so check your fund type before you plan around 54F.
Can you claim 54F if you already own a house?
Yes, if you own exactly one. No, if you own two or more.
The rule is tested on the date of the sale: on that date, you must not own more than one residential house other than the new house you will buy. So a person who owns one flat and buys a second one with share-sale money can claim 54F. A person who already owns two flats cannot, unless they first bring their holding down to one.
This is also why Section 54F planning must happen before the sale, not after. Once the sale date passes, the house count on that date cannot be changed.
Worked example: shares sold, house bought
Suppose you sell listed shares:
- Net sale consideration: Rs 80 lakh
- Long-term capital gain: Rs 50 lakh
- Amount invested in a new house: Rs 60 lakh
Exempt amount = Rs 50 lakh × (Rs 60 lakh ÷ Rs 80 lakh) = Rs 37.5 lakh
Taxable gain = Rs 50 lakh − Rs 37.5 lakh = Rs 12.5 lakh
Tax at 12.5% = Rs 1,56,250, plus 4% cess of Rs 6,250 = Rs 1,62,500
If you had invested the full Rs 80 lakh in the house, the entire Rs 50 lakh gain would have been exempt and the tax would have been nil. The Rs 20 lakh you did not invest is exactly why Rs 12.5 lakh of gain stayed taxable.
One extra point for share sellers: listed equity gains also have their own separate rule — the first Rs 1.25 lakh of such gains in a year is exempt, a limit raised from Rs 1 lakh by Budget 2024. That is a separate calculation from 54F, so take advice if both rules apply to the same sale.
What changed, and what stayed the same?
What changed:
- New number: Section 54F became Section 86 under the Income-tax Act, 2025, for sales from 1 April 2026. Section 54 became Section 82.
- Rs 10 crore cap: From FY 2023-24, only Rs 10 crore of the new house’s cost counts for the exemption. Buy a Rs 12 crore house and the extra Rs 2 crore gives no extra exemption.
- Tax rate: LTCG is now taxed at a flat 12.5% without indexation for most assets, replacing the older 20% with indexation for many assets.
What stayed the same:
- Who can claim: individuals and HUFs only.
- The full net consideration must be reinvested, not just the gain.
- The one-house rule, the buy and build deadlines, the Capital Gains Account Scheme and the three-year lock-in all work as before.
What if you have not bought a house by the ITR due date?
Use the Capital Gains Account Scheme (CGAS). If you have not bought or built the house by the due date for filing your return, deposit the amount you still plan to invest in a CGAS account at a public-sector bank branch before that due date.
The deposited amount counts toward the exemption for now. But it must actually be used to buy or build within the allowed window. If the window closes and the money is still unused, the gain that was sheltered becomes taxable in that later year. Depositing late — after you have already filed — does not save the claim.
What happens if you sell the new house within 3 years?
The exemption reverses. If you sell the new house within three years of buying it or completing its construction, the gain that was exempted earlier becomes taxable as a long-term capital gain in the year you sell.
The same reversal applies if, after the original sale, you buy another residential house within two years, or construct another one within three years. In short, the new house must be a genuine, held home — not a quick flip.
Practical impact: who gains most from Section 54F?
Section 54F helps most when a large, one-time gain meets a planned house purchase. A person selling a long-held plot or a big equity portfolio to buy their first or second home can wipe out lakhs in tax. It helps least when only part of the sale money goes into the house, because the exemption shrinks in the same proportion.
It is also a poor fit for someone who already owns two houses, or who needs the sale money for something other than a house. In those cases, the Section 54 guide for house-to-house sales, or the agricultural land sale guide for farm land, may be more relevant. For the wider rate picture, see the new tax regime slabs for FY 2026-27 and our HUF tax guide, since HUFs can also claim 54F.
Frequently asked questions
What is Section 54F exemption?
It is a tax relief that exempts long-term capital gains when you sell a long-term asset other than a house and reinvest the full sale money in one residential house in India. It is available to individuals and HUFs, and it is Section 86 under the Income-tax Act, 2025.
What is the difference between Section 54 and 54F?
Section 54 covers selling a house to buy another house, and only the gain needs reinvesting, with no limit on houses owned. Section 54F covers selling any other long-term asset to buy a house, and the entire sale money must be reinvested, with at most one other house owned on the sale date.
How much of the sale money must I reinvest under 54F?
The entire net sale consideration — the sale price after transfer expenses. If you invest less, the exemption falls in proportion, using the formula LTCG × (amount invested ÷ net sale consideration).
Can I claim 54F if I already own a house?
Yes, if you own only one house other than the new one on the date of sale. If you own two or more houses on that date, you cannot claim 54F for that sale.
What happens if I sell the new house within 3 years?
The exemption reverses. The gain that was exempted becomes taxable as a long-term capital gain in the year you sell the new house. Buying or building another house within the two-year or three-year windows after the original sale has the same effect.
What if I have not bought a house by the ITR due date?
Deposit the amount you still plan to invest in a Capital Gains Account Scheme account before the return due date. If you miss that deposit, the corresponding part of the gain stays taxable, and if deposited money goes unused within the allowed window, the sheltered gain becomes taxable in that later year.
Official sources
- Income Tax Department e-filing portal
- Income Tax Department, India
- India Code — Income-tax Act, 2025
Reviewed by Asuthod Rathod, CA — Last updated: 1 November 2026
Disclaimer: This article is for general information only and is not tax advice. Tax law and rates change, and individual cases differ. Verify the current rules on the official portals or consult a qualified tax professional before acting.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.