Section 54F of Income Tax Act with example: capital gains exemption, calculator

Section 54F of the Income Tax Act exempts the long-term capital gain on selling any asset other than a house, such as land, a plot, shares, mutual funds or gold, when you put the sale proceeds into one residential house in India. You must buy the house within one year before or two years after the sale, or build it within three years. Invest the whole net sale consideration and the whole gain is tax-free; invest part of it and the same part of the gain is exempt. Only individuals and HUFs can claim it, and not if they already own more than one other house. For sales from 1 April 2026 the same rule is section 86 of the Income-tax Act, 2025; sales up to 31 March 2026 are still claimed under section 54F.

The cost of the new house counts only up to ₹10 crore, and the exemption reverses if you sell the new house within three years or buy another one within two. We read section 86 and the 2026-27 ITR-2 form on 2 November 2026. The calculator and the worked examples below use the formula in the Act.

What is section 54F of the Income Tax Act?

Section 54F of the Income Tax Act, 1961 is a capital gains exemption for individuals and Hindu undivided families who sell a long-term asset that is not a residential house and buy or build a house with the money. It sits beside section 54, which covers the sale of a house, and section 54EC, which covers capital gains bonds. All three are rollover reliefs: the gain is not taxed as long as the money stays in the asset the law wants it in. The Income-tax Act, 2025, in force from 1 April 2026, keeps the rule and renumbers it as section 86, “Capital gains on transfer of certain capital assets not to be charged in case of investment in residential house”.

The exemption is worth the most to people selling land or a long-held share portfolio to buy a home, because the long-term gain on either is usually a large part of the sale price. It does nothing for a short-term gain, and nothing for a gain on selling a house: that is section 54.

What is exemption under section 54F?

The exemption under section 54F is the share of your long-term capital gain that escapes tax because you reinvested the sale money in a house: capital gain × cost of the new house ÷ net consideration. Net consideration is the full sale price minus the expenses of the sale, such as brokerage and legal fees (section 86(10)). It is not the gain. That is the trap in 54F: to exempt all of the gain you must invest all of the sale proceeds, not just the profit. The Act’s own words:

Two conditions sit outside the formula. The house must be one residential house in India, so a second flat or a villa abroad does not count. And on the date of the sale you must not own more than one residential house other than the new one (section 86(5)); owning one is fine, owning two shuts the exemption out completely.

How much does section 54F exempt? Calculator

The calculator below gives the exempt gain, the taxable gain and the tax from four figures. It applies the formula in section 86(1), the ₹10 crore cap in section 86(8) and the other-houses test in section 86(5). It opens with the plot in the first worked example.

Section 54F of the Income Tax Act with example

Three examples show the formula at work: a plot sold with part of the money reinvested, listed shares reinvested in a flat, and a ₹15 crore sale that runs into the ₹10 crore cap.

Example 1: a plot, partly reinvested. Meera sells a plot she has held for eight years for ₹90 lakh and buys a flat for ₹60 lakh:

To exempt the whole ₹54 lakh she would have to put ₹89 lakh into the flat, the full net consideration, not the gain. If the plot was bought before 23 July 2024 she may instead compute the gain with indexation and pay 20%; the LTCG calculator shows which is lower, and the same proportion of whichever gain she reports is exempt.

Example 2: listed shares. Arjun sells shares held for three years for ₹40 lakh, bought for ₹15 lakh, and buys a ₹30 lakh flat:

Example 3: the ₹10 crore cap. A family sells land for a net ₹15 crore with a gain of ₹12 crore and buys a ₹14 crore house:

Without the cap the whole gain would have been nearly exempt. With it, only ₹10 crore of the house counts, and only ₹10 crore of the sale money could have gone into a Capital Gains Accounts Scheme deposit either (section 86(9)).

What are the conditions for claiming section 54F?

Section 54F has seven conditions, and missing any one of them loses the exemption:

Two kinds of investment never qualify. Debt mutual fund units bought on or after 1 April 2023 and market-linked debentures are taxed as short-term whatever the holding period (section 76, formerly 50AA), and section 54F applies only to long-term gains.

What is the maximum amount of exemption allowed under section 54F?

The exemption under section 54F can never exceed ₹10 crore, because the cost of the new house counts only up to ₹10 crore (section 86(8), and section 54F from assessment year 2024-25 after the Finance Act, 2023). The gain is always smaller than the net consideration, so gain × ₹10 crore ÷ net consideration always stays below ₹10 crore. For any sale with a net consideration of ₹10 crore or less, the cap changes nothing: a house costing at least the net consideration still exempts the whole gain. The 2026-27 ITR-2 schema enforces the same ceiling, allowing at most 10,00,00,000 in the “amount of deduction claimed” field for sections 54 and 54F.

What is the major difference between section 54 and 54F?

Section 54 is for the gain on selling a residential house and asks you to reinvest only the gain; section 54F is for the gain on selling anything else and asks you to reinvest the whole net sale proceeds. The rest follows from that:

The two-house option is the one benefit section 54 has that section 54F lacks. The 2025 Act keeps it in section 82:

Section 54EC, now section 85, is the other alternative for land or buildings only: invest up to ₹50 lakh of the gain in specified bonds within six months of the sale, and keep them five years. For shares, gold or mutual funds, section 54F is the only one of the three that applies.

Can 54F be claimed on sale of shares?

Yes. Section 54F covers any long-term capital asset that is not a residential house, so long-term gains on listed shares, equity mutual funds, unlisted shares, ESOP shares and bonds all qualify, as long as the sale proceeds go into a house. The ITR-2 for 2026-27 has its own 54F line inside the section 112A rows for listed equity. Example 2 above shows the arithmetic. Four points matter for shares:

• Holding period. Listed shares and equity funds are long-term after 12 months; unlisted shares after 24. A short-term gain never qualifies.
• Reinvest the sale value, not the gain. On a portfolio held for years the gain may be a small part of the sale value, so a full exemption needs a house costing as much as everything you sold.
• The ₹1.25 lakh exemption still applies to the listed-equity gain left over after section 54F, so a small taxable remainder can end up tax-free.
• Several sales, one house. Selling shares in instalments is fine; each sale’s net consideration counts towards the same house if the dates fit the one-year-before and two-years-after window for each sale.

What if you have not bought the house by the ITR due date?

Deposit the unspent part of the net consideration in a Capital Gains Accounts Scheme account at an authorised bank branch before the due date of your return, and file the proof with the return; the deposit then counts as cost of the new house (section 86(2) and (3)). The due date is 31 July after the end of the year for most individuals whose accounts are not audited. The scheme dates from 1988 and runs through public-sector bank branches. Bank of Baroda’s description of it on 2 November 2026 gives the working rules:

• Two accounts: Account A is a savings account, Account B a term deposit. Joint accounts cannot be opened.
• Withdrawals: the first on Form C with the passbook, later ones on Form D showing how the previous withdrawal was spent; money withdrawn must be used within 60 days.
• Closing the account needs Form G approved by the Assessing Officer.

Whatever is not spent on the house within the period in section 86(1) is taxed in the tax year in which three years from the sale end (section 86(4)). The tax is on X − Y: the gain exempted on the strength of the deposit, minus the gain that would have been exempt on what you actually spent. Continuing Example 1, suppose Meera sold the plot on 10 August 2026, paid ₹20 lakh to the builder before filing and deposited ₹69 lakh in the scheme. Her return shows the whole ₹54 lakh as exempt. If the flat finally costs ₹60 lakh, then ₹17,59,551 is taxed as long-term gain in tax year 2029-30, the same amount she would have paid tax on had she bought the cheaper flat outright.

Under what circumstances can the exemption under section 54F be forfeited?

The section 54F exemption is reversed, and the exempted gain is taxed as long-term capital gain in a later year, in three situations:

1. You sell the new house within three years of buying or building it. The exempted gain is taxed in the year of that sale (section 86(7)), on top of any gain on the house itself.
2. You buy another residential house within two years of the original sale, or build one within three. The exempted gain is taxed in the year you buy or finish it (section 86(6)).
3. Scheme money is not used within three years. The unused share is taxed in the year the three years end (section 86(4)), as in the example above.

One more rule stops the exemption from applying at all: owning more than one house other than the new one on the date of sale, or buying another within one year of it (section 86(5)).

How to show 54F exemption in ITR?

Show the 54F exemption in ITR-2 (or ITR-3), Schedule CG: enter the sale in the long-term part, claim the exemption on the “Deduction under section 54F” line for that asset, and give the new house’s details in item D. The labels below are from the income tax department’s own ITR-2 utility for assessment year 2026-27 (version 1.4), which covers sales between 1 April 2025 and 31 March 2026:

1. Pick ITR-2, or ITR-3 if you also have business or professional income. ITR-1 and ITR-4 have no place for a 54F claim.
2. Open Schedule CG, part B (long-term capital gains), and enter the sale in the row for that asset: land or building, listed equity under section 112A, unlisted shares, or other assets. Give the sale value, the cost and the selling expenses.
3. Claim the exemption in the same row, on the line “Deduction under section 54F (Specify details in item D below)”.
4. Fill item D, “Information about deduction claimed against Capital Gains”, under “In case of deduction u/s 54/54B/54EC/54F/115F give following details”: date of transfer of original asset, cost of new residential house, date of purchase/construction of new residential house, amount deposited in Capital Gains Accounts Scheme before due date, date of deposit, account number and IFSC, and amount of deduction claimed.
5. In a later year, if a scheme deposit from an earlier sale went unused, report the reversal on the line “Amount deemed to be LTCG under sections 54F”.

The return schema behind the utility asks for the same eight fields in its 54F block, and it caps the amount of deduction at ₹10 crore. For a sale on or after 1 April 2026 the claim goes under section 86 in the return for tax year 2026-27, filed in 2027. That return form had not been published on the e-filing portal’s downloads page on 2 November 2026.

What is section 54F in the Income-tax Act, 2025?

Section 54F becomes section 86 of the Income-tax Act, 2025 for any sale on or after 1 April 2026, with the same formula, time limits, ₹10 crore caps and lock-in. The 2025 Act restates the conditions in plainer numbered sub-sections. The changes are in the references: “tax year” for “previous year”, section 67 for section 45, and section 263 for section 139. The neighbouring sections move too:

Which section applies depends on the date of the sale, not the date of the new house. A plot sold in March 2026 is claimed under section 54F even if the flat is bought in 2027; a plot sold in April 2026 is claimed under section 86.

धारा 54F क्या है? (Section 54F kya hai)

Common questions