Section 54 Exemption on Sale of House Property: Save Capital Gains Tax
Sold your residential house and worried about the capital gains tax bill? The Section 54 exemption lets you claim relief on Long-Term Capital Gains (LTCG) arising from the sale of a residential house property if you invest in a new residential house in India. The exemption is limited to the capital gain amount or the cost of the new house, whichever is lower.
WHO CAN CLAIM THIS EXEMPTION
Section 54 is available only to Individuals and HUFs. The asset sold must be a long-term capital asset, meaning the house must have been held for more than 24 months.
REINVESTMENT TIMELINES
You must purchase a new residential house in India within 1 year before or 2 years after the date of sale. If you are constructing, the deadline is 3 years from the date of sale.
RS 10 CRORE CAP (FINANCE ACT 2023)
Starting from AY 2024-25, the maximum exemption under Section 54 is capped at Rs 10 crore. If your new house costs more than Rs 10 crore, the excess is ignored while computing exemption.
TWO-HOUSE OPTION FOR GAINS UP TO RS 2 CRORE
If your LTCG does not exceed Rs 2 crore, you can reinvest in two residential houses instead of one. This option can be exercised only once in a lifetime.
CAPITAL GAINS ACCOUNT SCHEME (CGAS)
If you have not identified the new property before your ITR filing due date, deposit the capital gains amount in a CGAS account with an authorised bank before the due date. If the amount remains unutilised after 3 years from the date of transfer of the original asset, it gets taxed as LTCG.
LOCK-IN PERIOD
The new house must be held for at least 3 years from the date of purchase or construction. If you sell it before 3 years, the cost of acquisition of the new house is reduced by the exemption previously claimed, and the resulting capital gain is taxed accordingly.
PRACTICAL TIP
Always keep sale deeds, purchase agreements, construction receipts, and CGAS deposit proof ready. Plan your reinvestment early rather than waiting until the last month of the deadline.
WHO CAN CLAIM THIS EXEMPTION
Section 54 is available only to Individuals and HUFs. The asset sold must be a long-term capital asset, meaning the house must have been held for more than 24 months.
REINVESTMENT TIMELINES
You must purchase a new residential house in India within 1 year before or 2 years after the date of sale. If you are constructing, the deadline is 3 years from the date of sale.
RS 10 CRORE CAP (FINANCE ACT 2023)
Starting from AY 2024-25, the maximum exemption under Section 54 is capped at Rs 10 crore. If your new house costs more than Rs 10 crore, the excess is ignored while computing exemption.
TWO-HOUSE OPTION FOR GAINS UP TO RS 2 CRORE
If your LTCG does not exceed Rs 2 crore, you can reinvest in two residential houses instead of one. This option can be exercised only once in a lifetime.
CAPITAL GAINS ACCOUNT SCHEME (CGAS)
If you have not identified the new property before your ITR filing due date, deposit the capital gains amount in a CGAS account with an authorised bank before the due date. If the amount remains unutilised after 3 years from the date of transfer of the original asset, it gets taxed as LTCG.
LOCK-IN PERIOD
The new house must be held for at least 3 years from the date of purchase or construction. If you sell it before 3 years, the cost of acquisition of the new house is reduced by the exemption previously claimed, and the resulting capital gain is taxed accordingly.
PRACTICAL TIP
Always keep sale deeds, purchase agreements, construction receipts, and CGAS deposit proof ready. Plan your reinvestment early rather than waiting until the last month of the deadline.
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Disclaimer: This content is the author's personal opinion and analysis. It does not constitute professional tax or legal advice. Consult a qualified professional for specific advice on your situation.
Comments (5)
3-year holding period on new house. Important.
Rs 10 crore cap was overdue. Good that it's in place now.
The two-house option for gains under Rs 2 crore is a hidden gem. Use it wisely.
CGAS deposit before ITR due date — this is the step people miss
Great overview 🙏