Definition
Section 54 / 54F Capital Gains Exemption
Sections 54 and 54F let you save tax on long-term capital gains from property or other assets by reinvesting in a residential house.
Section 54 exempts long-term capital gains from selling a residential house if you reinvest the gains in another residential house within the prescribed time. Section 54F offers similar relief when you sell any other long-term asset (like shares or gold) and invest the net sale proceeds in a house, subject to conditions on not owning multiple houses.
If you cannot reinvest before filing your return, you can park the amount in a Capital Gains Account Scheme to preserve the exemption until you buy or construct the new house within the allowed period. There is also Section 54EC, which exempts property gains invested in specified bonds up to a limit.
These exemptions are valuable for reducing tax on large one-time gains, but the conditions on timelines, number of houses and holding periods are strict, so plan the reinvestment carefully.
Related terms
- Indexation and Cost Inflation Index (CII)Indexation adjusts the purchase price of an asset for inflation using the Cost Inflation Index, reducing taxable long-term capital gains.
- STCG vs LTCG by Asset ClassCapital gains are short-term or long-term depending on how long you hold an asset, and the holding period and tax rate differ by asset class.
- Capital Gains TaxCapital gains tax is the tax you pay on the profit from selling an asset such as shares, mutual funds, gold or property.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.