Section 54 and 54EC: saving capital gains tax on property

How to reinvest property sale proceeds to reduce or eliminate long-term capital gains tax.

If you have long-term capital gains from selling a residential property, two sections help reduce tax.

Section 54 — buy another home

• Applies to individuals and HUFs selling a residential house
• Invest the gain in one residential house in India
• Buy within 1 year before or 2 years after the sale, or construct within 3 years
• Exemption is capped at ₹10 crore
• Sell the new house within 3 years and the exemption can be withdrawn

Capital Gains Account Scheme

If you haven't reinvested by the income-tax return due date, deposit the unused amount in a Capital Gains Account at a bank to keep the exemption alive.

Section 54EC — specified bonds

• Invest up to ₹50 lakh in specified bonds (such as NHAI, REC, PFC, IRFC)
• Within 6 months of the sale
• 5-year lock-in

Section 54F

For long-term gains from assets other than a residential house (e.g., a plot), Section 54F gives a similar exemption if you invest the net sale consideration in a house, subject to conditions.

Combining exemptions

You can use Section 54 for part of the gain and Section 54EC for the rest, subject to each section's limits.

Worked example

Your long-term gain is ₹2 Cr. You buy a new flat costing ₹1.6 Cr within the time limits, and invest ₹40 lakh in 54EC bonds within six months. The whole gain can be exempt, subject to the conditions.

Under-construction homes

Section 54 allows construction within three years. Buying an under-construction flat usually counts as construction, provided it is completed within the time limit.

Keep records

Keep sale and purchase deeds, payment proofs, bond certificates and Capital Gains Account statements. The tax department can ask for them years later.

Frequently asked questions

Can I buy the new house in my spouse's name? Courts have taken differing views. Buying in your own name, or jointly, is safer.

Can I invest abroad? No. Section 54 requires a house in India.

Consult a chartered accountant before relying on any exemption.