Sold shares, gold, or land (not a house) and made a profit? You can avoid paying tax on the capital gain if you buy a residential house! That’s where Section 54F comes in. Let’s understand it simply 👇
What is Section 54F of the Income Tax Act?
If you sell any long-term capital asset (like gold, land, or shares) and use the sale money to buy a residential house, you can save tax on the profit.
Eligibility Criteria & Conditions to Claim Section 54F
| Requirement | Details |
| Asset Sold | Any long-term capital asset except residential house (e.g., land, gold, shares) |
| What You Must Do | Buy or build 1 residential house in India |
| Time to Buy/Build | Buy within 1 year before or 2 years after, or build within 3 years from sale date |
| Use of Funds | Entire sale amount (not just the gain) should be invested in the new house |
| Own Only One House | You should not own more than 1 residential house (other than the new one) at the time of sale |
| Don’t Sell for 3 Years | The new house must not be sold within 3 years |
Real-Life Example – How Section 54F Works (Layman Example)
Scenario:
Priya sold a plot of land (non-residential) in September 2025 for ₹80 lakhs, which she originally bought for ₹20 lakhs.
- Capital Gain = ₹60 lakhs
Case 1: Full Investment in House
- If she uses the full ₹80 lakhs to buy a residential flat within 2 years,
➡️ She gets 100% exemption under Section 54F.
➡️ No capital gains tax! 🥳
Case 2: Partial Investment
- But if she uses only ₹40 lakhs to buy a house,
➡️ Then only proportionate exemption is allowed:
Exempt Gain = ₹60L × (₹40L ÷ ₹80L) = ₹30L exempt
➡️ She pays tax on ₹30 lakhs.
Important Conditions You Shouldn’t Ignore
- You must not own more than one house at the time of sale.
- You can’t invest in multiple properties and still claim this exemption.
- If you sell the new house within 3 years, the tax exemption will be reversed!
What If You Don’t Buy a House Immediately?
You can deposit the money in a Capital Gains Account Scheme (CGAS) in a bank
🏦 This keeps your exemption valid – as long as you use it later to buy/build a house within the allowed time.
Pro Tip
If you’re selling land, gold, or shares and planning to buy a house anyway, Section 54F is a great way to save tax!
Conclusion
Section 54F is a powerful tax-saving provision for individuals selling long-term capital assets other than a house. By strategically reinvesting the proceeds in a new residential home, you can legally avoid paying capital gains tax.
FAQs
Can I buy more than one house under Section 54F?
No. The exemption is valid only if you invest in one residential property.
What happens if I invest only part of the sale amount?
You’ll get a proportionate exemption, and the remaining gain is taxable.
Can NRIs claim exemption under Section 54F?
Yes, Non-Resident Indians (NRIs) can also claim the benefit of Section 54F, provided all conditions under the Income Tax Act are met and the investment is made in a house located in India.
What is Section 54F of the Income Tax Act?
Section 54F allows a taxpayer to claim exemption on long-term capital gains earned from the sale of a non-residential asset (like land, gold, or shares), if the full sale proceeds are reinvested in purchasing or constructing a residential house within a specified period.
What type of assets are eligible under Section 54F?
Section 54F applies to any long-term capital asset except a residential house. This includes land, gold, mutual funds, or shares held for more than 36 months.
Can I claim Section 54F exemption if I already own one house?
Yes, you can claim the exemption only if you own no more than one residential house at the time of sale of the original asset. You should not own more than one house (excluding the new one you intend to buy).
What is the time limit to invest in a house under Section 54F?
You must:
1. Buy a residential house within 1 year before or 2 years after the asset sale, OR
2. Construct a residential house within 3 years from the date of sale.
Is it necessary to invest the entire capital gain or full sale amount?
You must invest the entire sale consideration, not just the capital gain. If you invest only part of it, the exemption will be allowed proportionately.
Can I invest in multiple properties under Section 54F?
No. The exemption is available only for one residential house in India. Investment in more than one property will disqualify you from claiming the exemption.
What happens if I sell the new house within 3 years?
If the new residential property is sold within 3 years, the exemption claimed earlier under Section 54F will be reversed, and the capital gain will become taxable in the year of sale.
What if I haven’t bought the house yet by the due date of filing ITR?
You can deposit the unutilized amount in a Capital Gains Account Scheme (CGAS) before the due date of filing your income tax return. This will preserve your eligibility for the exemption.
Can I claim both Section 54 and Section 54F together?
No, you cannot claim Section 54 and Section 54F for the same asset sale. However, you can claim both if you have sold two different types of assets (e.g., one residential house and one plot of land), subject to their respective conditions.