If you sold shares, mutual funds, gold or a plot of land and made a long-term capital gain, Section 54F of the Income-tax Act 1961 lets you avoid paying tax on that gain by investing the sale proceeds in one residential house in India. The catch is that you must reinvest the entire net sale consideration, not just the profit, to get the full exemption.
This guide explains exactly how Section 54F works for the return you file now, in financial year 2025-26 (assessment year 2026-27), who qualifies, the time limits, the proportionate formula, and how it differs from Section 54.
Section 54F is meant for people who sell a long-term capital asset that is NOT a residential house and want to shelter the gain by buying a home. It covers the sale of listed and unlisted shares, equity and debt mutual funds, gold, jewellery, a plot of land, commercial property, or any other long-term asset other than a residential house.
To use Section 54F you must be an individual or a Hindu Undivided Family (HUF). Companies and firms cannot claim it. The asset you sold must be long-term: held for more than 24 months for most assets, and more than 12 months for listed securities such as listed shares and equity-oriented mutual funds.
One more gate matters before you start. On the date you sell the original asset, you must not own more than one residential house other than the new one you are buying. Owning one other house is fine; owning two or more disqualifies you.
This is the difference that trips people up. Under Section 54 (sale of a house) you only need to reinvest the capital gain to wipe out the tax. Under Section 54F you must reinvest the entire net sale consideration, meaning the full sale price minus expenses on the transfer such as brokerage.
If you reinvest the whole net consideration, the entire long-term capital gain is exempt. If you reinvest only part of it, you get a proportionate exemption:
Exemption = Capital gain x (Amount invested in the house / Net sale consideration)
So selling a Rs 80 lakh asset with a Rs 30 lakh gain and putting only Rs 40 lakh into the house gives an exemption of Rs 30 lakh x (40 / 80) = Rs 15 lakh. The other Rs 15 lakh of gain is taxed. To exempt all Rs 30 lakh you would need to invest the full Rs 80 lakh.
| Rule | What it means |
|---|---|
| Maximum exemption | Capped at Rs 10 crore from 1 April 2024 (AY 2024-25 onward). Investment above Rs 10 crore is counted only up to Rs 10 crore. |
| Lock-in on the new house | Do not sell the new house within 3 years of buying or building it. If you do, the exemption you claimed earlier is reversed and taxed as long-term capital gain. |
| No second house | Do not buy another residential house (other than the new one) within 2 years, or construct one within 3 years, of the original sale, or the exemption is withdrawn. |
The buy or build deadlines run for 2 to 3 years, but your ITR is due much sooner. If you have not yet spent the money on the house by the return due date under Section 139(1), deposit the unused amount in a Capital Gains Account Scheme account with an authorised bank before that date. You can then claim the Section 54F exemption now and withdraw the money later to buy or build the house within the time limits. If you do not use the deposited amount in time, the unused portion becomes taxable in the year the deadline expires.
CGAS works the same way for both Section 54 and Section 54F. For the full account-opening and withdrawal process, see our guide on the Capital Gains Account Scheme for property sale under Section 54.
| Feature | Section 54 | Section 54F |
|---|---|---|
| Asset sold | A residential house | Any long-term asset except a residential house (shares, mutual funds, gold, plot, commercial) |
| What you must reinvest | Only the capital gain | The entire net sale consideration |
| Exemption if you invest part | Up to the gain reinvested | Proportionate to the consideration invested |
| Other-house condition | None of this type | Must not own more than one other residential house on the sale date |
| Amount cap | Rs 10 crore | Rs 10 crore |
| New house lock-in | 3 years | 3 years |
In short, Section 54 is the easier route because you only chase the profit. Section 54F asks for the whole sale value, which is why so many sellers fall back on the proportionate formula.
A salaried investor in Bengaluru sells listed shares she has held for over three years for Rs 60 lakh, after a brokerage of nil, leaving a net sale consideration of Rs 60 lakh. Her long-term capital gain is Rs 22 lakh. Because the shares are listed and held over 12 months, this gain would normally be taxed under Section 112A at 12.5% on the amount above Rs 1.25 lakh a year.
She buys a flat in Bengaluru for Rs 60 lakh within two years of selling the shares, and she owns no other house. Because she has reinvested the entire net sale consideration, her full Rs 22 lakh gain is exempt under Section 54F, and she pays no long-term capital gains tax on it.
If instead she invested only Rs 30 lakh in the flat, her exemption would be Rs 22 lakh x (30 / 60) = Rs 11 lakh, and the remaining Rs 11 lakh of gain would be taxed under Section 112A.
To understand your rights and how to use information law to check government records and deadlines, see The RTI Playbook.
Yes. Section 54F applies to the sale of any long-term capital asset that is not a residential house. That includes equity and debt mutual funds, gold, jewellery, a plot of land, commercial property and shares. The asset must be long-term, meaning held over 24 months for most assets and over 12 months for listed securities.
Under Section 54F you must invest the entire net sale consideration, which is the full sale price minus transfer expenses, to exempt the whole gain. If you invest only part of the consideration, the exemption is proportionate: capital gain multiplied by the amount invested divided by the net sale consideration. This is the main way Section 54F differs from Section 54.
If you sell the new residential house within 3 years of buying or constructing it, the exemption you claimed earlier under Section 54F is reversed. The amount that was exempt is treated as long-term capital gain and taxed in the year you sell the new house.
Deposit the unused sale money in a Capital Gains Account Scheme (CGAS) account with an authorised bank before your return due date under Section 139(1). You can then claim the exemption now and withdraw the money later to buy the house within 2 years or build it within 3 years. If you do not use it in time, the unused portion is taxed when the deadline passes.
Yes. From 1 April 2024, the exemption is capped at Rs 10 crore. If you invest more than Rs 10 crore in the house, only Rs 10 crore is counted for the exemption and the gain attributable to the excess is taxable.
You can own up to one other residential house on the date you sell the original asset and still claim Section 54F. If you own two or more residential houses (apart from the new one) on that date, you cannot use Section 54F.
Before you sell, check whether your asset is long-term and whether reinvesting the entire net sale consideration into one house is realistic for you. If it is not, work out the proportionate exemption so you know the tax on the unsheltered part. If your home purchase will run past the return due date, open a CGAS account in time. When the asset you sold is a residential house rather than shares or gold, use Section 54 instead, and read our companion guide on the Capital Gains Account Scheme under Section 54. For large gains, confirm the figures with a tax professional before filing your AY 2026-27 return.