Section 54 — All Conditions to Qualify
| Condition | Requirement |
|---|---|
| Who claims | Must be Individual or Hindu Undivided Family (HUF) |
| Asset being sold | Must be a long-term residential house property (held >2 years) |
| New house — purchase | Buy one new residential house in India within 1 year before or 2 years after date of transfer |
| New house — construction | Construct one residential house within 3 years of transfer date |
| Number of new houses | Only ONE new house — budget 2019 allowed two houses for gains up to ₹2 crore (once in lifetime) |
| Lock-in period | New house must not be transferred within 3 years of purchase/construction |
| Exemption amount | Lower of: capital gain OR cost of new house (if cost < gain, remaining gain is taxable) |
Capital Gains Account Scheme — Preserve Your Exemption Window
If you have sold your property and earned capital gains, but haven't yet bought the new house before your Income Tax Return (ITR) due date, you risk losing the Section 54 exemption. The Capital Gains Account Scheme (CGAS) solves this:
How Capital Gains Account Scheme Works
- Deposit the capital gain amount in a CGAS account at a designated nationalised bank before ITR due date
- Show the deposit in your ITR to claim Section 54 exemption
- Use the deposited funds to buy/construct new house within 2/3 years
- If funds not used within the time limit — the unused amount becomes taxable in that year
- Interest earned in CGAS is taxable
3-year lock-in is critical: If you claim Section 54 exemption and sell the new house within 3 years of purchase, the exemption is withdrawn. The capital gain that was exempt will be added to the cost of the new house and taxed when the new house is sold. Plan your holding period before claiming the exemption.
Related Terms
Frequently Asked Questions
Section 54 exempts Long-Term Capital Gains (LTCG) from selling a residential house property if the seller reinvests the capital gain in purchasing (within 2 years) or constructing (within 3 years) another residential house. The exemption equals the amount reinvested — if the new house costs less than the capital gain, the shortfall is taxable.
Conditions: (1) Seller must be Individual or HUF, (2) property sold must be long-term residential house (held >2 years), (3) reinvest in one new residential house in India — purchase within 1 year before or 2 years after sale, or construct within 3 years, (4) new house must not be sold within 3 years, (5) exemption limited to one house (two houses allowed once if gain ≤₹2 crore).
If you sell property but haven't bought a new house before your ITR due date, deposit the capital gain in a Capital Gains Account Scheme (CGAS) at a nationalised bank. This preserves your Section 54 exemption in the ITR. The deposited amount must then be used to buy/construct the new house within 2/3 years. Unused amounts become taxable.
Yes. NRIs can claim Section 54 exemption on sale of residential property in India — the reinvestment must be in one residential house property in India. NRIs face higher TDS on sale (20% or 30%), but can claim Section 54 exemption when filing their Indian ITR and get a refund of excess TDS. They should apply for a lower TDS certificate in advance if possible.
Section 54: reinvest LTCG from selling a residential house in another residential house. Section 54EC: invest LTCG (from any long-term capital asset) in notified bonds (NHAI, REC) within 6 months — up to ₹50 lakh. Section 54EC doesn't require buying property — just bond investment. Both can be used together if gains exceed ₹50 lakh.