Section 54 - Exemption on Capital Gains

Are you looking to sell your house property but concerned about paying tax for capital gains?

Then, section 54 is one of the prominent options for saving taxes on capital gains for an individual or HUF who sells their residential house and from its sale proceeds, acquires another residential house.

What is section 54 of the Income Tax Act?

This section allows tax exemption on the long-term capital gains earned from selling a house property and reinvesting the sale amount in the purchase or construction of another house property.

Simply when you shift from one residential house to another to acquire a suitable house, in such a case rather than paying income tax on long-term capital gains, you can purchase another house to reduce your tax liability subject to certain conditions.

  • The asset sold must be Long Term Capital Asset, which is a residential house property
  • An individual must purchase a new house property before 1 year or after 2 years from the sale of the previous House Property, within 3 years in case of construction of a new house property
  • The house property should be sold and bought only in India.

Read more about the eligibility on Section 54 of Income Tax Act on Sale of House- Learn by Quicko

According to the exemptions under section 54, whichever is lower between the capital gain and the investment in new property, will be exempted from taxation.

Let’s understand by an example,

Raju sold a house property in December 2022, for ₹1 crore, which was purchased in November 2014 for ₹70 lakhs, Now he has purchased another property for ₹80 lakhs in the year 2022.

The calculation of the exemption is as follows:

Taking inflation into consideration, the cost price will be adjusted, and the indexed cost of acquisition will also be taken into account.

Index Cost of Acquisition = Cost Price* Cost of Inflation in the year of transfer (FY 2022-23) / Cost of Inflation in the year when purchased (2014-15)


In Budget 2023, FM, Nirmala Sitharaman has announced capital gain tax exemption on the sale of the first residential property under sections 54 and 54F, capped at Rs 10 crore.

What does it mean?

An individual who reinvests the entire amount from the sale of assets to purchase or construct a residential house can claim a capital gains exemption of up to 10 crores, earlier, there was no threshold limit. Applicable from FY 2022-23.

When will the section 54 exemption be withdrawn?

An individual claiming an exemption has a lock-in period of 3 years, in case the new residential house is sold within 3 years from the date of purchase or construction then the exemption under Section 54 is withdrawn.

If the cost of the new house purchased is more than capital gains, then the cost of purchase will be the Total Purchase Price less Exemption u/s 54.

Here’s a detailed article on Section 54 of Income Tax Act on Sale of House- Learn by Quicko.

If any queries, you can ask them out.

what if it is a commercial property ?

as per the recent budget announced : the limit is capped to 10 crores ! am i right ?


The asset has to be a Residential House Property only, under section 54.

Yes, as per the budget announced in 2023, the capital gain exemption limit is capped at ₹10 crores.

Hope it helps.

so . is there any section or provision for tax saving in case of commercial property ?


Yes, under section 54F, a taxpayer can claim a capital gain exemption on the sale of a long-term capital asset to purchase or construct a new Residential House Property, if specified conditions are fulfilled.

Hence you can sell a commercial house property to purchase residential house property.

Read more about the eligibility criteria to claim an exemption under Section 54F of the Income Tax Act.

Hope it helps.

1 Like