Section 54 vs 54F: Capital Gains Exemption Explained
Section 54 and Section 54F both help you save tax when you buy a house with the money from a sale. People often mix them up. They look similar, but the rules are quite different. Picking the wrong one can cost you lakhs in tax. This guide breaks down both, side by side, in plain language.
Quick summary
- Section 54: for selling a residential house and buying another residential house.
- Section 54F: for selling any other long-term asset (plot, gold, shares) and buying a house.
- Under 54 you reinvest only the gain. Under 54F you must reinvest the full sale value.
- Both cap the exemption at Rs 10 crore from AY 2024-25.
- Section 54F has an extra condition: you must not own more than one other house.
What each section covers
Think of it by what you sold.
| Point | Section 54 | Section 54F |
|---|---|---|
| What you sold | A residential house | Any long-term asset that is not a house (plot, gold, shares, etc.) |
| What you must buy | A residential house | A residential house |
| Amount to reinvest | The capital gain only | The full net sale value |
| Own other houses? | Allowed | Can own at most one other house on the sale date |
| Exemption cap | Rs 10 crore | Rs 10 crore |
The key difference: gain vs full value
This is where most people slip. Under Section 54, you only need to reinvest the profit. If you sold a house for Rs 1 crore with a gain of Rs 40 lakh, you reinvest Rs 40 lakh to save all the tax.
Under Section 54F, you must reinvest the entire sale value, not only the profit. If you sold a plot for Rs 1 crore with a gain of Rs 40 lakh, you must put the whole Rs 1 crore into the house to get the full exemption. If you reinvest only part, the exemption is proportional.
54F proportional example
You sell a plot for Rs 1 crore. Gain is Rs 40 lakh. You buy a house for Rs 60 lakh.
- Reinvested share = 60 lakh ÷ 1 crore = 60%.
- Exempt gain = 60% of Rs 40 lakh = Rs 24 lakh.
- Taxable gain = Rs 16 lakh.
Time limits (same for both)
- Buy a ready house within 1 year before or 2 years after the sale.
- Or construct a house within 3 years of the sale.
- If you cannot reinvest before your ITR due date, park the money in a Capital Gains Account Scheme deposit. See our guide on the Capital Gains Account Scheme.
Conditions you must not break
Both sections take back the exemption if you sell the new house within 3 years. Under 54F, there are two extra traps:
- You should not own more than one house (other than the new one) on the date of the original sale.
- You should not buy another house within 2 years or build one within 3 years, apart from the one you claimed.
If you break these, the exemption is reversed and added back to your income.
The two-house benefit under Section 54
Section 54 has a special one-time benefit. If your long-term gain is up to Rs 2 crore, you can buy two houses instead of one and still claim the exemption. You can use this only once in a lifetime. Section 54F does not have this benefit. It always requires one house.
Which one applies to you?
It is decided by what you sold, not by choice.
- Sold a flat or house, buying a house: Section 54.
- Sold a plot, gold, or shares, buying a house: Section 54F.
You cannot pick the more convenient one. The asset you sold fixes the section. For a wider view of all exemptions, read how to save capital gains tax on property.
Frequently asked questions
Can I use Section 54 and 54F together?
Yes, if you have gains from different assets. Gain from a house goes under 54, gain from a plot goes under 54F. They apply to their own assets.
Do I reinvest the gain or the full sale value under 54F?
The full net sale value. This is the single biggest difference from Section 54, where only the gain must be reinvested.
What is the exemption cap now?
Rs 10 crore for both sections, from AY 2024-25. Reinvestment above this does not add more exemption.
Can I claim 54F if I already own two houses?
No. On the date of sale you can own at most one house apart from the new one. Owning two or more disqualifies you.
Can I buy two houses under Section 54?
Yes, once in a lifetime, if the long-term gain is up to Rs 2 crore. Otherwise the exemption is for one house.
What if the new house is not ready before my return is due?
Deposit the required amount in a Capital Gains Account Scheme account before the due date. Then use it to buy or build within the time limit.
Does buying a plot qualify?
No. Both sections need a residential house. A plot alone does not qualify unless you build a house on it within the time limit.
Can I claim the exemption for a house bought abroad?
No. From AY 2015-16, the new house must be in India.
What if I sell the new house soon after buying?
If you sell within 3 years, the earlier exemption is reversed and the amount is taxed. Hold the new house for at least 3 years.
Are these exemptions available under the new tax regime?
Yes. Capital gains exemptions under Sections 54 and 54F are available regardless of whether you choose the old or new regime.
Can NRIs claim Section 54 and 54F?
Yes. NRIs can claim both when they reinvest in a house in India. See NRI selling property in India for the added TDS steps.
The rule is simple once you know it. Match the section to what you sold, reinvest the right amount, and hold the new house for 3 years. When you are ready to buy, look through available projects that fit your plan.
