Definition
Section 54
Section 54 of the Income Tax Act lets an individual save tax on long-term capital gains from selling a residential house by reinvesting the gain in another residential house.
If you sell a long-term residential property and buy or construct another residential house within the time limits set by the section, the capital gain is exempt to the extent reinvested. The new house must generally be bought within a year before or two years after the sale, or constructed within three years, and there are conditions on holding and on owning multiple houses.
If you cannot reinvest before filing your return, you can park the gain in a Capital Gains Account Scheme to preserve the exemption until you complete the purchase or construction. Section 54 is a key tool for upgrading homes without an immediate tax hit, but the timelines and conditions must be followed precisely.
Related terms
- Real Estate Capital GainsReal estate capital gains are the profits you make when you sell a property for more than its cost, and they are taxable in India as short-term or long-term gains.
- Section 54FSection 54F allows exemption of long-term capital gains from selling any asset other than a residential house — such as land, shares or gold — if you invest the net sale proceeds in a residential house.
- Section 54EC BondsSection 54EC bonds are specified capital-gains bonds (issued by entities like NHAI, REC, PFC and IRFC) in which you can invest long-term gains from selling property to claim a tax exemption.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.