A long-term gain on property is taxable, but three exemptions can remove most or all of it. They differ in what you must have sold, what you must buy, and how much you must reinvest. Choosing between them after the money has arrived is how people end up paying tax they need not have paid.
The three, side by side
| Section 54 | Section 54F | Section 54EC | |
|---|---|---|---|
| What you sold | A residential house | Any long-term asset except a house | Land or building |
| What you must buy | Another residential house | A residential house | Specified bonds |
| Reinvest | The capital gain | The entire net sale consideration | Up to ₹50 lakh |
| Deadline | Buy within 1 yr before / 2 yrs after, or build within 3 yrs | Same | Within 6 months of transfer |
The 54F row is the one that surprises. Sell land and you must reinvest the whole sale price, not just the gain, to get the full exemption. Reinvest part and the exemption is proportionate.
The conditions that quietly disqualify people
- 54F is barred if you already own more than one residential house on the date of transfer, other than the new one.
- Lock-in. Sell the new house within three years and the exemption is withdrawn and taxed in that later year. The 54EC bonds carry a five-year lock-in and cannot be pledged.
- 54EC has a ₹50 lakh ceiling, and it is measured across financial years for one transfer, so splitting across a year end does not double it.
- A house means a house. Two adjacent flats may or may not qualify as one residential house depending on the facts, and this is litigated regularly.
When the filing deadline arrives before you have bought
This is common — the sale completes in February and you have not found the new property by July. The answer is the Capital Gains Account Scheme: deposit the unutilised amount in a designated account with a bank before your return due date, and the exemption holds while you continue looking.
Miss that and the exemption is simply lost for money sitting in your ordinary account, however genuine your intention. Money withdrawn from the scheme and not used within the period becomes taxable in the year the period expires.
Remember the buyer of your property has their own duty to deduct 1% — see TDS on property purchase — and that credit needs to reach your 26AS.
Where we come in
The exemption should be chosen before you sell, not after the funds arrive — the reinvestment obligations differ enough to change what you should buy. See capital gains tools and talk to us before completing.
This article is general information, not professional advice. Limits, rates and dates change by notification — confirm the position for your own year before acting on it.