TL;DR: When you sell a property and earn long-term capital gains, the Income-tax Act, 2025 (effective Tax Year 2026-27) gives you three lever-arm exemptions: Section 82 (was §54) if you reinvest the gain in another residential house; Section 85 (was §54EC) if you park up to Rs. 50 lakh in REC / PFC / IRFC / HUDCO / IREDA bonds within 6 months; and Section 86 (was §54F) if you sold a non-house asset (land, shares, gold) and reinvest the net consideration in a residential house. The Finance (No. 2) Act, 2024 imposed a Rs. 10 crore cap on both Section 82 and Section 86. Miss the deadline and you must park the unutilised amount in the Capital Gains Account Scheme (CGAS) before the ITR due date or the exemption is lost.

The 30-Second Summary

Three exemption sections, three different fact patterns, three different deadlines. Section 82 is for the family selling one house and buying another — only the gain needs to be reinvested. Section 86 is for the family selling shares, gold or land and buying their first or upgrade home — the full net consideration must be reinvested. Section 85 is the bond fallback when you cannot or will not buy a house — capped at Rs. 50 lakh, locked for 5 years. Most high-stakes property sales use a combination — partial Section 82 reinvestment plus Section 85 bonds for the residue.

1. Threshold Setup — What "Long-Term" Means for Property

The exemptions kick in only for long-term capital gains. Post-Budget 2024 (Finance (No. 2) Act, 2024 effective for transfers on or after 23 July 2024):

  • Land or building: long-term if held more than 24 months. Sale at 24 months or earlier ⇒ STCG ⇒ no Section 82 / 85 / 86 exemption available.
  • LTCG rate on land/building: 12.5% under Section 197 of the 2025 Act (successor to Section 112 of the 1961 Act). Indexation benefit was removed for transfers on or after 23 July 2024. Limited grandfather carve-out: resident individuals and HUFs holding pre-23-July-2024 land / building can elect either the new 12.5% no-indexation rate or the old 20% with-indexation rate, whichever yields lower tax (the lower-of-the-two principle in §197(3)).
  • Cess: 4% on the tax. Surcharge applies on income, not on the gain in isolation.

If your sale falls within 24 months of purchase, your exit is at slab-rate STCG — no exemption. The reinvestment exemptions are a long-term-asset-only club.

2. Section 82 — Sell a House, Buy a House (was §54)

Section 82 of the Income-tax Act, 2025 exempts long-term capital gains arising from the transfer of a residential house property when the gain is reinvested in another residential house in India.

Eligibility

  • Who: Individuals and Hindu Undivided Families only. Not companies, firms, or AOPs.
  • What you sell: A long-term residential house property — building or land appurtenant thereto, the income from which is taxable as "Income from House Property".
  • What you buy: One residential house in India.

Time Windows

  • Purchase: One year before the date of sale, or within two years after the date of sale.
  • Construction: Completed within three years from the date of sale.

Quantum of Exemption

The exemption is the lower of:

  1. Long-term capital gain on the original sale, OR
  2. Cost of the new residential house.

Note: only the gain needs to be reinvested under Section 82, not the full sale consideration. This is the cleanest exemption in the chapter.

The Two-House Option (LTCG ≤ Rs. 2 Crore)

From AY 2020-21 onwards (and preserved in Section 82), an assessee may purchase or construct two residential houses in India to claim the exemption, provided the long-term capital gain does not exceed Rs. 2 crore. This is a once-in-a-lifetime option — once exercised, the same assessee cannot claim the two-house benefit again in any later sale.

The Rs. 10 Crore Cap (Post 1 April 2024)

Finance (No. 2) Act, 2024 capped the exemption at Rs. 10 crore. If the cost of the new residential house exceeds Rs. 10 crore, only Rs. 10 crore is considered for the exemption calculation. The same Rs. 10 crore cap is preserved in Section 82 of the 2025 Act.

Reversal Rule

If the new residential house is transferred within 3 years of its purchase / construction, the exemption is reversed: the original capital gain that was exempted gets taxed in the year of the new transfer (and the new asset's cost basis is reduced for STCG computation on the second sale).

3. Section 85 — Bonds Within 6 Months (was §54EC)

Section 85 of the Income-tax Act, 2025 exempts long-term capital gains arising from the transfer of land or building when the gain is invested in specified long-term bonds within 6 months of the transfer.

Eligibility

  • Who: Any assessee — individual, HUF, company, firm, etc. (Wider than Section 82 / Section 86, which are individual/HUF only.)
  • What you sell: Long-term land or building. Gains on shares, gold, mutual funds, etc. do not qualify for Section 85.
  • What you buy: Specified bonds.

Eligible Bond Issuers (Specified Long-Term Assets)

  • Rural Electrification Corporation Limited (REC)
  • Power Finance Corporation Limited (PFC)
  • Indian Railway Finance Corporation Limited (IRFC)
  • Housing and Urban Development Corporation Limited (HUDCO) — eligible for bonds issued on or after 1 April 2025
  • Indian Renewable Energy Development Agency Limited (IREDA) — eligible from 9 July 2025

Note: National Highways Authority of India (NHAI) bonds were 54EC-eligible historically but NHAI stopped accepting fresh applications from 3 September 2022. The other issuers remain active.

Investment Cap, Lock-In, and Conditions

  • Cap: Rs. 50 lakh in the financial year of the transfer and the subsequent financial year, combined — not Rs. 50 lakh per FY. So the absolute ceiling is Rs. 50 lakh per transferred property.
  • Lock-in: 5 years from the date of acquisition. Cannot be transferred, converted, or pledged as security during the lock-in.
  • Window: investment must be made within 6 months from the date of transfer.
  • Returns: bonds redeem at maturity; current coupon ~5.25% p.a. (post-tax economics modest).

Reversal Rule

If the bonds are transferred or converted into money before the 5-year lock-in expires (or if the bonds are pledged for any loan / advance), the exemption originally claimed reverses, and the amount becomes taxable as long-term capital gain in the year of breach.

4. Section 86 — Sell Other Assets, Buy a House (was §54F)

Section 86 of the Income-tax Act, 2025 exempts long-term capital gains arising from the transfer of any long-term capital asset other than a residential house, when the net consideration is reinvested in one residential house in India.

Eligibility

  • Who: Individuals and HUFs only.
  • What you sell: Any long-term capital asset other than a residential house property. Examples — commercial property, land, listed shares, mutual fund units, gold, jewellery, paintings.
  • What you buy: One residential house in India.

The Net-Consideration vs Gain Difference

Section 86 is structurally tougher than Section 82. Under Section 82 you only reinvest the gain; under Section 86 you have to reinvest the net sale consideration (sale price less transfer expenses) to get the full exemption. If you reinvest only part of the net consideration, the exemption is proportionate:

Section 86 Exemption = Capital Gain × (Amount Invested in New House / Net Consideration)

Owner-of-One-House Condition

This is the trap most people miss. To claim Section 86, on the date of transfer the assessee must not own more than one residential house (apart from the new one being purchased / constructed). And the assessee must not, within 2 years of the transfer, purchase another residential house, or within 3 years construct another residential house. If either limb breaks, the entire Section 86 exemption is reversed.

Time Windows

Same as Section 82 — purchase 1 year before / 2 years after, construction within 3 years.

The Rs. 10 Crore Cap (Post 1 April 2024)

Same Rs. 10 crore cap as Section 82 — both the cost of the new asset and the net consideration are deemed restricted to Rs. 10 crore for the proportionate exemption math. Sales above this threshold do not get unbounded exemption.

Reversal Rule

If the new residential house is transferred within 3 years of its purchase / construction, OR the assessee buys / constructs another residential house within 2 / 3 years of the original transfer, the exemption claimed is reversed and taxed as long-term capital gain in the year of breach.

5. The Capital Gains Account Scheme (CGAS) — The Deadline-Bridge

What if you sell on 1 December 2026, intend to reinvest, but cannot find / close on a new house before the ITR due date for AY 2027-28 (typically 31 July 2027)? The unutilised gain or net consideration must be deposited in a Capital Gains Account Scheme (CGAS) account with a designated public-sector bank before that ITR filing due date. Otherwise, the exemption you intended to claim is forfeited.

How CGAS Works

  • Open a CGAS account at any branch of a designated bank (SBI, PNB, BoB, etc.). Two account types: Type A (savings-like) for any disbursal, Type B (term-deposit-like) for longer parking.
  • Deposit the unutilised amount before the ITR due date.
  • Withdraw to fund the new house purchase / construction within the relevant Section 82 / 86 window (2 / 3 years).
  • If unutilised amounts remain in CGAS at the end of the window, the unutilised portion becomes taxable as long-term capital gain in that year.

Practical tip: open the CGAS account before filing the ITR. Banks are slow; ITR filing days fill up the queues. Build a 2-3 week buffer.

6. Worked Examples

Example A — Section 82 Clean Reinvestment

Anjali sells her flat in October 2026 for Rs. 1.8 crore. Indexed cost (assuming pre-23-July-2024 acquisition with grandfather election) = Rs. 60 lakh. LTCG = Rs. 1.2 crore. She buys a new flat in March 2027 for Rs. 1.5 crore.

Section 82 exemption = lower of Rs. 1.2 crore (LTCG) and Rs. 1.5 crore (cost of new house) = Rs. 1.2 crore. Entire LTCG exempt. Tax payable: nil.

Example B — Section 82 Partial Reinvestment

Same facts as A, but Anjali buys a new flat for only Rs. 80 lakh.

Section 82 exemption = lower of Rs. 1.2 crore and Rs. 80 lakh = Rs. 80 lakh. Taxable LTCG = Rs. 1.2 crore − Rs. 80 lakh = Rs. 40 lakh, taxed at 12.5% under Section 197 = Rs. 5 lakh + cess.

Example C — Section 82 + Section 85 Combined

Vikram sells inherited house in November 2026 for Rs. 3 crore. LTCG = Rs. 2.5 crore. He buys a smaller house for Rs. 1.8 crore (Section 82 covers Rs. 1.8 crore of the gain). Of the residual Rs. 70 lakh gain, he invests Rs. 50 lakh in REC bonds (Section 85). Remaining Rs. 20 lakh gain is taxed at 12.5% = Rs. 2.5 lakh + cess.

Stacking Section 82 with Section 85 is a common HNI strategy when the new house is smaller than the old one.

Example D — Section 86 Net-Consideration Math

Rohan sells unlisted shares (long-term, holding > 24 months) in July 2026 for Rs. 3 crore. Cost of acquisition = Rs. 1 crore. LTCG = Rs. 2 crore. Net consideration after brokerage = Rs. 2.95 crore. He buys a house for Rs. 2 crore. He owns no other residential property at the time.

Section 86 exemption = Rs. 2 crore × (Rs. 2 crore / Rs. 2.95 crore) = Rs. 1.36 crore. Taxable LTCG = Rs. 2 crore − Rs. 1.36 crore = Rs. 64 lakh, taxed at 12.5% under Section 197 = Rs. 8 lakh + cess.

Had Rohan reinvested the entire Rs. 2.95 crore net consideration, the exemption would have been the full Rs. 2 crore.

Example E — Owner-of-One-House Trap

Same facts as D, but Rohan owns two flats in his name on the date of share sale. Section 86 fails entirely — he doesn't meet the owner-of-one-house condition. Full Rs. 2 crore LTCG taxable at 12.5% = Rs. 25 lakh + cess.

Example F — CGAS Bridge

Priya sells a plot in February 2027 for Rs. 3 crore. LTCG = Rs. 2.4 crore. She wants to build on a different plot but needs municipal approvals. She deposits Rs. 2.4 crore into a CGAS Type B account in May 2027 (before ITR due date 31 July 2027). She files ITR claiming Section 82 exemption. She then has 3 years (until February 2030) to complete construction. Withdrawals from CGAS are made stage-wise to fund construction. If she fails to construct in time, the unused balance becomes taxable LTCG in FY 2029-30.

7. Common Mistakes

  • Treating Section 86 like Section 82. Section 86 needs net consideration reinvested; Section 82 needs only the gain. Mis-modelling under-exempts and triggers tax on a sale you thought was exempt.
  • Skipping CGAS deposit before ITR due date. Without CGAS, the unutilised amount is treated as taxable LTCG of the original year — even if you actually buy the house 18 months later. The exemption is irretrievable.
  • Buying the new property in spouse's / child's sole name. Section 82 requires the new house to be in the assessee's name. Joint registration with the assessee is fine (with funds traceable). Buying entirely in another's name forfeits the exemption.
  • Forgetting the 3-year reversal lock-in. If the new house is sold within 3 years, the originally exempted gain comes back as STCG cost-base reduction and as a deemed gain in the year of new sale.
  • Stacking Section 85 above Rs. 50 lakh. The Rs. 50 lakh cap is hard, across the FY of transfer and the next FY combined — it is not Rs. 50 lakh per FY.
  • Investing in non-eligible bonds. Many "capital gains bonds" floated by private issuers are NOT Section 85 eligible. Stick to REC, PFC, IRFC, HUDCO (post 1 April 2025), IREDA (post 9 July 2025).
  • Section 86 owner-of-one-house breach. Owning two residential houses on the date of transfer kills Section 86 entirely. Plan disposal of the second house before the trigger sale.
  • Missing the bond 6-month window. Section 85 bonds must be invested within 6 months of transfer. Often slips between sale, demat opening, KYC, etc.
  • Ignoring Rs. 10 crore cap on big-ticket sales. Sales above Rs. 10 crore on cost-of-new-asset / consideration math hit the cap; the residual gain is taxable.
  • Indexation grandfather mis-claim. The pre-23-July-2024 indexation election under Section 197(3) is for resident individuals and HUFs only, on land/buildings only. NRIs and companies do not get the election; nor do other asset classes.

8. Practitioner Checklist Before the Sale

  1. Confirm the asset is held more than 24 months — otherwise no exemption available.
  2. Identify the right exemption(s): Section 82 (house-to-house), Section 85 (bonds), Section 86 (other-asset-to-house). Stacking is often the best plan.
  3. Check the owner-of-one-house condition for Section 86 well before the sale — restructure ownership if needed.
  4. Model the Rs. 10 crore cap impact for Section 82 / 86 high-value sales.
  5. Plan the Section 85 bond investment timing (6 months from sale — budget for KYC + demat).
  6. Factor the indexation grandfather election for resident-individual / HUF land or building held before 23 July 2024 (Section 197(3) lower-of-the-two principle).
  7. Pre-open a CGAS account if reinvestment will straddle the ITR due date.
  8. Document the sale-purchase chain: sale agreement, payment receipts, builder allotment letter, registry, bond certificates, CGAS passbook.
  9. Calendar the 2 / 3 year reinvestment / construction window AND the 3-year reversal lock-in. Set diary alerts.
  10. For NRI sellers, sequence Section 82 / 85 / 86 with §393(2) TDS and Section 395 lower-TDS-certificate planning. The two compliance trails interact.

9. Bottom Line

Capital gains exemption planning on property sale under the 2025 Act is unchanged in substance from the 1961 Act — only the section numbers (54→82, 54EC→85, 54F→86) and the post-Budget-2024 caps and indexation regime have moved. The triangle of options — reinvest in a house under Section 82 or 86, park in bonds under Section 85, or bridge the gap with CGAS — covers virtually every property-sale tax-planning scenario. The expensive errors recur every season: forgetting CGAS, missing the bond window, miscalculating Section 86 net-consideration vs gain, and breaking the owner-of-one-house condition. Plan the exemption stack before you sign the sale deed, not after the proceeds hit your account.

10. Legal References

  • Income-tax Act, 2025 — effective Tax Year 2026-27 (1 April 2026).
  • Section 82, Income-tax Act, 2025 — capital gains exemption on sale of long-term residential house property reinvested in another residential house in India. Successor to Section 54 of the 1961 Act. Two-house option once-in-lifetime up to Rs. 2 crore LTCG; Rs. 10 crore overall cap on cost / consideration introduced by Finance (No. 2) Act, 2024.
  • Section 85, Income-tax Act, 2025 — capital gains exemption on transfer of land or building when invested in specified long-term bonds within 6 months. Successor to Section 54EC of the 1961 Act. Cap Rs. 50 lakh in transfer year + subsequent year combined; lock-in 5 years; eligible issuers: REC, PFC, IRFC, HUDCO (post 1 April 2025), IREDA (post 9 July 2025).
  • Section 86, Income-tax Act, 2025 — capital gains exemption on sale of any long-term capital asset other than residential house, when the net consideration is reinvested in one residential house in India. Successor to Section 54F of the 1961 Act. Owner-of-one-house condition; proportionate exemption; Rs. 10 crore cap on cost of new asset and net consideration introduced by Finance (No. 2) Act, 2024; reversal if new house is transferred within 3 years or another house purchased within 2 / constructed within 3 years.
  • Section 197, Income-tax Act, 2025 — LTCG on land/building at 12.5%; indexation removed for transfers on/after 23 July 2024; resident-individual / HUF grandfather carve-out under Section 197(3) (lower-of-the-two principle for pre-23-July-2024 land/buildings). Successor to Section 112 of the 1961 Act.
  • Capital Gains Account Scheme, 1988 — bridge mechanism for unutilised gains / consideration pending reinvestment within the Section 82 / 86 windows. Carried forward in operation under the 2025 Act regime.
  • Finance (No. 2) Act, 2024 and CBDT FAQ on the new capital gains regime (PIB Press Release dated 23 July 2024) — introduced 12.5% no-indexation LTCG rate, Rs. 10 crore cap on Section 54 / 54F (now Section 82 / 86), and the 24-month uniform LTCG holding period for property.
  • Notifications recognising HUDCO and IREDA as 54EC / Section 85 issuers — CBDT notifications effective 1 April 2025 (HUDCO) and 9 July 2025 (IREDA).
  • Old-Act anchors: Section 54, Section 54EC, Section 54F, Section 112 of the Income-tax Act, 1961; Capital Gains Account Scheme 1988.

For high-value or cross-border property sales — NRI sellers, sales straddling the 23 July 2024 indexation cliff, partial reinvestment with CGAS, owner-of-one-house borderline cases, and stacked Section 82 + Section 85 plans — consult an experienced practising chartered accountant. Confirm exact section text, bond issuer notifications, and CGAS bank-specific procedures before relying on this summary.