Capital Gains Tax Exemptions 2026: Section 54, 54F, 54EC & Capital Gains Account Scheme – Complete Guide
A client in Lajpat Nagar called me in March 2026. She had sold a house she had inherited from her mother — sale price ₹2.4 crore, purchase price (adjusted) approximately ₹80 lakh, long-term capital gain roughly ₹1.6 crore. At 12.5%, her tax liability was ₹20 lakh. She had two months before the financial year ended and no new property lined up. “Is there anything I can do?” she asked.
There was. We parked the entire gain in a Capital Gains Account Scheme before July 31, claimed Section 54 exemption in her ITR, and she had two full years to identify and purchase a new property without losing the exemption. Her ₹20 lakh tax liability went to zero — legally, using provisions that have been in the Income Tax Act for decades.
This guide covers the complete framework of capital gains exemptions — Section 54, 54F, 54EC, and CGAS — updated for FY 2025-26 with the corrections the existing version of this article needed.
1. ₹10 crore cap missing: Both Section 54 and Section 54F have a maximum exemption cap of ₹10 crore — applicable from AY 2024-25 (April 1, 2023 Budget change). The earlier version did not mention this.
2. NHAI bonds wrong: NHAI has stopped issuing new 54EC bonds. Current eligible issuers are REC, PFC, IRFC, HUDCO (from April 1, 2025 — Notification 31/2025), and IREDA (2025). Old NHAI bonds held before remain valid but no new ones are issued.
3. New Regime restriction missing: Section 54, 54F, and 54EC exemptions are not available under the New Tax Regime — a critical planning point missing from the earlier version.
4. ITA 2025: From Tax Year 2026-27, these provisions are renumbered in the Income Tax Act 2025 — Section 54 stays as Section 54, 54F becomes Section 86, 54EC provisions continue under restructured chapters. For AY 2026-27 (FY 2025-26) filings, the ITA 1961 sections apply.
Capital Gains — The Basics Before the Exemptions
A capital gain arises when you sell a capital asset — property, shares, gold, bonds, land — for more than its cost. The gain is taxed depending on how long you held the asset.
| Asset Type | Short-Term (STCG) | Long-Term (LTCG) | LTCG Rate (FY 2025-26) |
|---|---|---|---|
| Residential / commercial property | Held < 24 months | Held ≥ 24 months | 12.5% without indexation |
| Agricultural land / plot | Held < 24 months | Held ≥ 24 months | 12.5% without indexation |
| Listed equity shares / equity MFs | Held < 12 months — 20% | Held ≥ 12 months | 12.5% above ₹1.25L exemption |
| Gold, unlisted shares, bonds | Held < 24 months — slab rate | Held ≥ 24 months | 12.5% without indexation |
| Debt mutual funds (post April 2023) | Any holding period | N/A — all at slab rate | Slab rate regardless |
The exemptions under Sections 54, 54F, and 54EC apply only to Long-Term Capital Gains — not short-term. And critically, they are available only under the Old Tax Regime. If you have opted for the New Regime in a year when you sell a major property, you lose access to all three exemptions.
Section 54 — Selling One Residential House, Buying Another
Who Can Claim
Only individuals and HUFs — companies, firms, and LLPs cannot claim Section 54 exemption.
What Must Be Sold
A residential house property classified as a long-term capital asset — held for 24 months or more. The property must have been used as a residence — not commercial property, not a plot, not a shop.
What Must Be Purchased
A new residential house in India. The purchase must happen either 1 year before the sale or within 2 years after the date of sale. If constructing a new house rather than purchasing, construction must be completed within 3 years from the sale date.
How Much Exemption
Exemption = lower of (a) the long-term capital gain, or (b) the cost of the new house. Capped at ₹10 crore — the cost of the new house above ₹10 crore is ignored for exemption purposes. This cap was introduced from AY 2024-25 and continues in AY 2026-27.
Lock-In Condition
The new house cannot be sold within 3 years of purchase or construction. If sold before 3 years, the exemption claimed is reversed — it is added back as capital gain of the original sale year and the seller must pay tax plus interest.
The ₹2 Crore — Two Houses Rule
If the LTCG is ₹2 crore or less, the seller can invest in two residential houses instead of one — and claim the exemption for both. This option is available once in a lifetime and must be explicitly chosen in the ITR. This cannot be exercised again in future years.
Mrs. Sharma’s Case — Section 54 Calculation
| Item | Amount |
|---|---|
| Sale price of old flat | ₹1,80,00,000 |
| Cost (purchase 2016, no indexation post July 2024) | ₹60,00,000 |
| Long-Term Capital Gain | ₹1,20,00,000 |
| New flat purchased (within 2 years) | ₹1,30,00,000 |
| Section 54 exemption (lower of gain or new cost) | ₹1,20,00,000 |
| Taxable LTCG | Zero |
| Tax saved at 12.5% | ₹15,00,000 |
Section 54F — Selling Any Long-Term Asset, Buying a House
Section 54F is broader and more powerful than Section 54 in one important respect: the asset being sold does not have to be a residential house. It can be shares, gold, a commercial property, an agricultural plot, bonds, or any other long-term capital asset that is not a residential house. The reinvestment target is still a new residential house.
Who Can Claim
Only individuals and HUFs.
What Must Be Sold
Any long-term capital asset other than a residential house. Shares, gold, agricultural land, commercial property, plots — all eligible.
The Full Proceeds Condition
Unlike Section 54 (which looks at the gain amount), Section 54F requires the entire net sale consideration — the full proceeds, not just the gain — to be reinvested in the new house. If you invest only part of the proceeds, the exemption is proportionate:
Exemption = LTCG × (Amount Invested ÷ Net Sale Proceeds)
The One-House Condition
At the time of sale, the seller must not own more than one residential house (other than the new house being purchased). If you already own two or more houses on the date of sale — Section 54F is not available at all.
Exemption Cap
Same as Section 54 — ₹10 crore cap on the cost of the new house considered for exemption. Above ₹10 crore of investment, the excess is ignored.
Lock-In
New house cannot be sold within 3 years. If sold before 3 years, the proportionate exemption claimed is reversed.
Ramesh — Shares Sold, House Purchased (Section 54F)
| Item | Amount |
|---|---|
| Listed shares sold (LTCG eligible) | Sale proceeds: ₹50,00,000 |
| Cost of shares | ₹20,00,000 |
| LTCG | ₹30,00,000 |
| Entire proceeds invested in new house | ₹50,00,000 |
| Section 54F exemption (full proceeds invested) | ₹30,00,000 — full gain exempt |
| Tax saved at 12.5% | ₹3,75,000 |
If Ramesh had only invested ₹35 lakh (not full ₹50L): Exemption = ₹30L × (₹35L ÷ ₹50L) = ₹21L exempt. Taxable gain = ₹9L. Tax = ₹1,12,500.
Section 54EC — Bond Route: No House Needed
Section 54EC is for those who have sold immovable property — land or building — and do not want to buy another property. The exemption is available by investing the capital gain in government-notified infrastructure bonds.
Who Can Claim
Any taxpayer — individuals, HUFs, companies, firms, partnership firms. Unlike Section 54 and 54F, this is not restricted to individuals and HUFs.
What Must Be Sold
Only land, building, or both — long-term. Shares, gold, and other assets do not qualify for Section 54EC.
Current Eligible Bonds (Updated July 2026)
| Issuer | Status | Approx Interest Rate |
|---|---|---|
| REC (Rural Electrification Corporation) | ✅ Active — bonds available | ~5.25% p.a. |
| PFC (Power Finance Corporation) | ✅ Active — bonds available | ~5.25% p.a. |
| IRFC (Indian Railway Finance Corporation) | ✅ Active — bonds available | ~5.25% p.a. |
| HUDCO | ✅ Active from April 1, 2025 — Notification 31/2025 dated April 7, 2025 | ~5.25% p.a. |
| IREDA (Indian Renewable Energy Dev. Agency) | ✅ Notified in 2025 | ~5.25% p.a. |
| NHAI (National Highways Authority) | ❌ No longer issuing new bonds — existing old bonds remain valid | N/A for new purchases |
Key Conditions and Limits
| Parameter | Detail |
|---|---|
| Investment deadline | Within 6 months from date of sale — strictly enforced |
| Maximum investment per financial year | ₹50 lakh — aggregate cap across all sales in the year |
| Lock-in period | 5 years — no premature redemption |
| Interest earned | Taxable as Income from Other Sources at slab rate — only the principal enjoys CGT exemption |
| TDS on interest | No TDS deducted by issuers for resident investors — must self-report in ITR each year |
| Loan against bonds | Treated as transfer — triggers reversal of exemption |
| CGAS for 54EC | ❌ Not applicable — CGAS works only for Section 54 and 54F reinvestment in property |
Mr. Gupta — Commercial Plot Sold (Section 54EC)
| Item | Amount |
|---|---|
| Commercial plot sold — LTCG | ₹45,00,000 |
| REC bonds invested within 5 months | ₹45,00,000 |
| Section 54EC exemption | ₹45,00,000 — full gain exempt |
| Tax saved at 12.5% | ₹5,62,500 |
| Interest earned over 5 years at 5.25% | ≈ ₹11,81,250 — taxable at slab rate annually |
The interest is taxable every year — at 30% slab, approximately ₹70,000 per year in income tax on the interest. Factor this into the net benefit calculation. The capital gains tax saving of ₹5.62 lakh in year one is still the dominant financial advantage.
Capital Gains Account Scheme (CGAS) — The Bridge When Property Is Not Found Yet
Here is the situation my Lajpat Nagar client was in, and it is more common than people realise. The property has been sold, the gain is in hand, but the right new property has not been found yet — and the ITR filing deadline is approaching.
CGAS exists for exactly this scenario. You deposit the unused portion of the gain (or the full gain) in a CGAS account at any nationalised bank before the ITR filing due date — typically July 31. This preserves your exemption eligibility while giving you time to find and purchase the right property.
CGAS Account Types
| Type | Nature | Interest Rate | Best For |
|---|---|---|---|
| Type A — Savings | Savings account — withdraw as needed for reinvestment | ~3–4% p.a. | Purchase expected soon, need liquidity |
| Type B — Term Deposit | FD-style — higher interest, penalties for early withdrawal | ~6–7% p.a. | Longer timeline, higher earnings on parked amount |
How It Works in Practice
- Sell the property — compute LTCG
- Before ITR filing due date (July 31, 2026 for FY 2025-26 — for most individuals): deposit unutilised gain in CGAS account at any nationalised bank
- File ITR claiming Section 54 (or 54F) exemption — mention CGAS account details in the return
- Use the CGAS funds within 2 years (for property purchase) or 3 years (for construction) to complete the reinvestment
- If the funds are not used within the time limit — the unused amount becomes taxable as capital gains in the year the time limit expires, with interest from the original sale date
Section 54B — Agricultural Land Sale
For completeness — Section 54B covers capital gains from sale of agricultural land. The exemption is available by purchasing new agricultural land within 2 years of the sale. New land must be in India and must continue to be used for agricultural purposes for 3 years after purchase. Available only to individuals and HUFs. The new agricultural land cannot be within the municipal limits of a city with population above 10,000 for the rural agricultural land exemption to apply.
Combining Sections — The Strategy for Large Gains
Section 54 and Section 54EC can be used together on the same sale to cover a gain larger than ₹50 lakh. This combination is legitimate and confirmed by multiple ITAT rulings.
Anita — Large Land Sale, Combined Strategy
Anita sold an agricultural plot. LTCG: ₹80 lakh. She owns no residential house currently.
| Section | Investment | Exemption |
|---|---|---|
| Section 54F (plot → new house) | ₹50,00,000 of ₹80L net proceeds → new house | ₹80L × (₹50L ÷ ₹80L) = ₹50,00,000 |
| Section 54EC (remaining gain) | ₹30,00,000 in PFC bonds within 6 months | ₹30,00,000 |
| Total exemption | — | ₹80,00,000 — entire gain exempt |
| Tax saved at 12.5% | — | ₹10,00,000 |
Condition: The same gain cannot be counted twice. Each rupee of gain is covered by one section only. The two sections work on different portions of the gain — not the same portion.
Quick Reference Comparison
| Parameter | Section 54 | Section 54F | Section 54EC |
|---|---|---|---|
| Asset sold | Residential house | Any LTCA except residential house | Land or building only |
| Who can claim | Individual, HUF | Individual, HUF | Anyone — company, firm too |
| Reinvestment in | New residential house | New residential house | Notified bonds (REC/PFC/IRFC/HUDCO/IREDA) |
| Investment amount | Up to the gain (max ₹10 crore) | Full sale proceeds (max ₹10 crore) | Up to ₹50 lakh per FY |
| Time limit (purchase) | 1 yr before / 2 yrs after | 1 yr before / 2 yrs after | 6 months after sale |
| Time limit (construction) | 3 years | 3 years | N/A |
| Lock-in | 3 years (new house) | 3 years (new house) | 5 years (bonds) |
| CGAS available | ✅ Yes | ✅ Yes | ❌ No |
| New Regime eligible | ❌ No | ❌ No | ❌ No |
| ₹10 crore cap | ✅ Yes — from AY 2024-25 | ✅ Yes — from AY 2024-25 | N/A (separate ₹50L cap) |
Common Mistakes
Missing the 6-month 54EC deadline:
This is the single most common and expensive mistake. Six calendar months from the date of sale — not six months from receipt of proceeds, not six months from registration, but from the sale date (usually the date of the agreement or conveyance deed). If your sale was on October 15, 2025, the bond investment deadline is April 15, 2026. Bond processing takes 2–3 weeks — place the order immediately after sale, not in month five or six.
Assuming NHAI bonds are available:
NHAI stopped issuing new 54EC bonds. Calling your bank and asking for “NHAI 54EC bonds” will result in confusion or incorrect guidance. Ask specifically for REC, PFC, IRFC, HUDCO, or IREDA bonds. Confirm the current tranche availability on the issuer’s website before investing.
Not accounting for the ₹10 crore cap in Section 54 and 54F:
For high-value property transactions — particularly in Mumbai, Delhi, and Bengaluru where property values are substantial — the ₹10 crore cap matters. If you purchase a new house for ₹15 crore, only ₹10 crore is counted for exemption purposes. The gain attributable to the remaining ₹5 crore of investment is still taxable. Plan investment amounts accordingly.
Choosing the New Regime in the year of sale:
If you are in the New Tax Regime, none of these exemptions are available. A taxpayer who sells a property expecting to use Section 54F but has already opted for the New Regime that year has no access to the exemption. Check your regime status before executing a major sale — and if needed, opt for the Old Regime for that assessment year while the reinvestment window is open.
Selling the new house within 3 years:
The exemption claimed under Section 54 or 54F is reversed if the new house is sold within 3 years. The reversed amount is treated as LTCG in the year of the second sale — plus interest from the original sale date. Life circumstances sometimes force a sale, but be fully aware of this consequence before selling.
Capital Gains Tax 2026 — STCG vs LTCG Complete Guide
NRI Considerations
NRIs can claim Section 54, 54F, and 54EC exemptions — the conditions are the same as for residents. The new property under Section 54/54F must still be in India. The one significant practical difference: when an NRI sells Indian property, the buyer is required to deduct TDS at 12.5% of the gross sale price (under Section 195). This TDS is deducted on the full sale value — not just the gain — and is often far larger than the actual tax liability after exemption.
To avoid this excess TDS deduction, the NRI should apply for a lower/nil TDS certificate under Section 197 from the jurisdictional Assessing Officer before the sale. This takes 4–6 weeks to obtain. Plan ahead. Without the certificate, the buyer deducts TDS at the full rate, and the NRI then waits for a refund — which can take months to process.
Frequently Asked Questions
Q1. I sold my house in March 2026. Can I purchase a new house before filing my July 2026 ITR?
Yes — and if you do, claim Section 54 directly without needing CGAS. If the new house purchase is not complete by July 31, 2026, deposit the gain in CGAS before July 31 and claim the exemption in your ITR. You then have 2 years from the sale date (March 2028) to complete the purchase using CGAS funds.
Q2. My LTCG is ₹1.5 crore. Can I invest ₹50 lakh in 54EC bonds and ₹1 crore in a new house?
Yes — this is a valid combination. The ₹50 lakh is exempt under Section 54EC, and the ₹1 crore in a new house can be claimed under Section 54 (if selling a residential house) or Section 54F (if selling another asset). Ensure the same rupee of gain is not claimed under two sections simultaneously.
Q3. I have two residential houses. Can I still claim Section 54F?
No. Section 54F requires that you do not own more than one residential house on the date of sale (excluding the new house being purchased). If you own two or more houses at the time of sale, Section 54F is not available. Section 54EC remains available if your asset being sold is land or building.
Q4. I invested in 54EC bonds but the interest was not declared in my ITR for two years. What are the consequences?
The 54EC bond interest is taxable every year and must be declared under Income from Other Sources — there is no TDS deducted by the issuers for resident investors. Undeclared interest will appear in your AIS from the issuer’s SFT filings. Declare it in your ITR, pay the tax, and file a revised or belated return for missed years. Interest under Section 234A may apply for late payment.
Q5. Can I claim Section 54 if I reinvest in a house jointly with my spouse?
Yes — the new house can be in joint name with a spouse. The key condition is that the assessee (the person who sold the original house and made the capital gain) must be one of the joint owners of the new property. The exemption claim is made in the seller’s ITR — not the spouse’s. The proportion of the new house’s value attributable to the seller’s investment is what counts for exemption.
Conclusion
Capital gains exemptions under Sections 54, 54F, and 54EC are among the most valuable provisions in the Income Tax Act — and the most frequently misused or missed due to outdated information. The ₹10 crore cap on Sections 54 and 54F, the NHAI bond cessation, the New Regime restriction, and the HUDCO addition are all relatively recent developments that fundamentally change the planning picture for FY 2025-26.
My client in Lajpat Nagar saved ₹20 lakh in tax by using CGAS correctly. Anita saved ₹10 lakh by combining Section 54F with 54EC. These are not exotic strategies — they are standard provisions that reward careful timing, correct regime selection, and the discipline to act before deadlines rather than after them. The 6-month 54EC window, the July 31 CGAS deposit deadline, and the New Regime restriction are the three things that catch people most often. Know them before you sell, not after.
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