Selling a house, land, shares, mutual funds, or another capital asset can result in capital gains tax. However, the Income-tax Act provides certain exemptions where the capital gains or sale proceeds can be reinvested in specified assets within prescribed timelines.
There are nine key capital gains exemptions under Sections 54 to 54GB, but the rules differ depending on the asset sold and the asset in which the money is reinvested.
Section 54: Sell a house, buy another house
Asset sold: Residential house property or land attached to it.
Reinvestment: Another residential house in India.
This exemption is available to individuals and Hindu Undivided Families (HUFs) when a property is sold after 24 months. The new house must be purchased within one year before or two years after the sale, or constructed within three years.
The exemption is limited to the amount of actual capital gains, the amount invested, or ₹10 crore. A one-time option is also available to invest in two houses where the capital gain does not exceed ₹2 crore.
Section 54B: Sell agricultural land, buy agricultural land
Asset sold: Agricultural land.
Reinvestment: Another agricultural land.
Individuals and HUFs can claim this exemption if the original land was used for agricultural purposes for at least two years before its sale by the taxpayer, their parents, or the HUF. The new agricultural land must be purchased within two years after the transfer.
Section 54D: Compulsory acquisition of industrial property
Asset sold: Land or building forming part of an industrial undertaking and used for its business for at least two years before compulsory acquisition.
Reinvestment: Land, building or related rights for shifting or re-establishing the undertaking, or setting up another industrial undertaking.
The new land or building must be purchased or constructed within three years after the compulsory acquisition.
Section 54EC: Sell land or building, invest in specified bonds
Asset sold: Long-term land or building.
Reinvestment: Specified bonds issued by NHAI, REC, HUDCO or other bonds notified by the Central Government.
The investment has to be made within six months of the transfer. The exemption is capped at ₹50 lakh and is subject to the applicable five-year holding conditions.
Section 54EE: Sell a long-term capital asset, invest in specified assets
Asset sold: Any long-term capital asset.
Reinvestment: Specified long-term assets notified for funding eligible start-ups.
The investment must generally be made within six months. The exemption is capped at ₹50 lakh.
Section 54F: Sell shares or mutual funds, buy a house
Asset sold: A long-term capital asset other than a residential house—for example, shares or mutual fund units.
Reinvestment: One residential house in India.
Unlike Section 54, this provision is linked to the net sale consideration, not simply the capital gain. The eligible investment is subject to a ₹10 crore ceiling, and the exemption is calculated in proportion to the amount invested in the new house.
The new house must be purchased within one year before or two years after the transfer, or constructed within three years.
The exemption does not apply if the taxpayer already owns more than one residential house on the date of transfer, apart from the new house covered by the provision.
Section 54G: Shift an industrial undertaking out of an urban area
Asset sold: Plant, machinery, land, building or related rights used by an industrial undertaking in an urban area.
Reinvestment: New plant or machinery, land or building, or eligible shifting-related expenses.
The capital gain must be used for specified purposes within one year before or three years after the transfer.
Section 54GA: Shift an industrial undertaking to an SEZ
Asset sold: Assets such as plant, machinery, land or building used by an industrial undertaking in an urban area.
Reinvestment: Assets or eligible expenses connected with shifting the undertaking to a Special Economic Zone (SEZ).
The reinvestment must generally take place within the same one-year-before or three-year-after window prescribed under the section.
Section 54GB: Sell residential property and invest through an eligible company
Asset sold: Long-term residential property, including a house or plot of land.
Reinvestment: Equity shares of an eligible company or eligible start-up, which then uses the funds to acquire qualifying new assets.
This exemption is available to individuals and HUFs, subject to conditions on the type of company or start-up, the taxpayer’s shareholding, and the use of the investment for new assets.
Disclaimer: This is only for informational and educational purposes. Please consult a qualified expert for the latest laws and regulations.