Section 54F Exemption AY 2026-27: Complete Guide

ITAI Blogger

September 5, 2026

Selling long-term capital assets such as shares, land, mutual funds or jewellery can create a significant tax liability. However, an individual or Hindu Undivided Family (HUF) may claim Section 54F exemption in AY 2026-27 by investing the net sale consideration in one residential house in India, subject to specific conditions.

For FY 2025-26, the exemption can cover the entire long-term capital gain if the taxpayer invests the full net consideration in the new house. The maximum amount considered for this purpose is ₹10 crore. This guide explains Section 54F eligibility, calculation, purchase and construction deadlines, Capital Gains Account Scheme rules, ownership restrictions and availability under the new tax regime.

What is Section 54F exemption for an individual in AY 2026-27?

Section 54F provides relief from long-term capital gains tax when an individual or HUF sells a long-term capital asset other than a residential house and invests the net consideration in a residential house in India.

The exemption is available on a proportionate basis:

Section 54F exemption = Long-term capital gain × Investment in new house ÷ Net sale consideration

The exemption is generally available only when the taxpayer invests the entire net consideration. If only part of the net consideration is invested, the exemption is proportionately reduced.

The governing provision is Section 54F of the Income-tax Act, 1961, read with the rules applicable for the relevant assessment year.

Assets that may qualify

Section 54F may apply to long-term capital gains from:

Listed equity shares held for more than 12 months
Unlisted shares held for more than 24 months
Equity-oriented mutual fund units held for more than 12 months
Land or buildings held for more than 24 months
Jewellery and other assets held for more than 24 months
Other eligible long-term capital assets, except a residential house

The asset sold must not be a residential house. If the taxpayer sells a residential house and purchases another house, Section 54 generally applies instead.

Section 54F eligibility conditions for FY 2025-26

An individual claiming Section 54F exemption for FY 2025-26 must satisfy all the following conditions:

The taxpayer must be an individual or HUF.
The transferred asset must be a long-term capital asset other than a residential house.
The taxpayer must purchase or construct one residential house in India.
The purchase or construction must take place within the specified time limit.
On the date of transfer, the taxpayer must not own more than one residential house, apart from the new house.
The taxpayer must not purchase another residential house within two years or construct another residential house within three years from the date of transfer.
The taxpayer must invest the required amount before the applicable deadline or deposit the unutilised amount under the Capital Gains Account Scheme.

The exemption can be denied if any of these conditions is breached.

How to claim Section 54F exemption on sale of property, shares or other assets

A taxpayer should follow these steps to claim the exemption:

Step 1: Determine whether the asset is long-term

Calculate the holding period based on the type of asset. For example:

Listed shares and listed securities generally become long-term after more than 12 months.
Unlisted shares, land and buildings generally become long-term after more than 24 months.
Other assets may have different holding-period rules.

For transfers made on or after 23 July 2024, the applicable long-term capital gains tax rates and indexation rules depend on the nature of the asset and the taxpayer’s circumstances. The Finance Act, 2024 changed several capital gains provisions, but it did not remove the Section 54F relief mechanism.

Step 2: Calculate the net sale consideration

Net sale consideration means:

Full value of consideration - transfer expenses

Transfer expenses may include brokerage, commission and other expenses incurred wholly and exclusively in connection with the transfer.

The cost of acquisition and cost of improvement are not deducted while calculating net sale consideration. They are deducted separately to calculate the long-term capital gain.

Step 3: Calculate the long-term capital gain

The broad calculation is:

Net sale consideration - cost of acquisition - eligible cost of improvement = long-term capital gain

Other adjustments, such as indexation where legally applicable, must be considered based on the date and nature of transfer.

Step 4: Invest in the new residential house

The taxpayer must purchase or construct one residential house in India within the prescribed period. The investment should be supported by:

Registered purchase deed or agreement
Payment records
Construction invoices
Bank statements
Loan documents, where applicable
Possession or completion documents, where available

Step 5: Report the exemption in the income tax return

The taxpayer must report:

Sale of the original asset
Long-term capital gain
Amount invested in the new house
Amount deposited in the Capital Gains Account Scheme, if applicable
Section 54F exemption claimed

The Income Tax Department’s e-filing portal provides the applicable income tax return forms and filing guidance.

Section 54F new house purchase and construction time limit

The time limit depends on whether the taxpayer purchases or constructs the house.

Investment method	Permitted time limit
Purchase before transfer	Within 1 year before the date of transfer
Purchase after transfer	Within 2 years after the date of transfer
Construction after transfer	Within 3 years after the date of transfer

For example, if an individual sells long-term shares on 15 September 2025:

The taxpayer could have purchased the house on or after 16 September 2024.
A purchase after the sale must generally be completed by 14 September 2027.
Construction must generally be completed by 14 September 2028.

The relevant date is normally the date of transfer of the original asset. Taxpayers should preserve documents showing that the purchase or construction falls within the statutory period.

What counts as construction?

Construction should represent genuine construction of a residential house. Merely purchasing an incomplete property may raise questions depending on the facts and the stage of construction. A taxpayer should retain building agreements, contractor bills, approvals and payment records.

The law gives three years for construction, but the taxpayer should not delay without a genuine reason. The exemption may be questioned if the construction is not completed within the permitted period.

Section 54F exemption calculation with the ₹10 crore limit

The Finance Act, 2023 introduced a ₹10 crore limit on the cost of the new asset considered for Section 54F. This restriction applies from the relevant assessment year beginning on or after 1 April 2024.

If the cost of the new residential house exceeds ₹10 crore, only ₹10 crore is considered for calculating the exemption. The excess amount does not increase the Section 54F benefit.

Example 1: Full exemption where investment is below ₹10 crore

An individual sells long-term shares for ₹2,40,00,000.

Net sale consideration: ₹2,40,00,000
Long-term capital gain: ₹80,00,000
Investment in new house: ₹2,40,00,000

Since the taxpayer invests the full net consideration, the Section 54F exemption is:

₹80,00,000 × ₹2,40,00,000 ÷ ₹2,40,00,000 = ₹80,00,000

The entire long-term capital gain may be exempt, subject to fulfilment of all other conditions.

Example 2: Partial investment

Assume:

Net sale consideration: ₹2,40,00,000
Long-term capital gain: ₹80,00,000
Investment in new house: ₹1,20,00,000

Exemption:

₹80,00,000 × ₹1,20,00,000 ÷ ₹2,40,00,000 = ₹40,00,000

The balance long-term capital gain of ₹40,00,000 remains taxable.

Example 3: Section 54F exemption calculation with ₹10 crore limit

Assume:

Net sale consideration: ₹12,00,00,000
Long-term capital gain: ₹5,00,00,000
Cost of new house: ₹12,00,00,000

Although the taxpayer spends ₹12 crore, only ₹10 crore is considered because of the statutory cap.

Exemption:

₹5,00,00,000 × ₹10,00,00,000 ÷ ₹12,00,00,000

Exemption available: approximately ₹4,16,66,667

Taxable long-term capital gain: approximately ₹83,33,333

This is why taxpayers selling high-value shares, land or other assets should consider the ₹10 crore ceiling while planning the reinvestment.

Section 54F exemption for long-term capital gains on shares

Section 54F can apply to long-term capital gains on shares, including eligible listed and unlisted shares, because shares are not residential houses.

For example, an individual selling listed shares held for more than 12 months may claim Section 54F if the resulting long-term capital gain is invested in one residential house in India.

The following points are important:

The shares must qualify as a long-term capital asset under the applicable rules.
Securities Transaction Tax, where applicable, does not by itself prevent a Section 54F claim.
The taxpayer must invest the required amount, not merely the capital gain.
The exemption is based on the proportion of investment to net sale consideration.
The new house must satisfy the ownership and timing conditions.

Example involving listed shares

An individual sells listed shares for ₹3,00,00,000.

Cost of shares: ₹1,00,00,000
Long-term capital gain: ₹2,00,00,000
Net sale consideration: ₹3,00,00,000
Investment in new house: ₹3,00,00,000

The entire long-term capital gain of ₹2,00,00,000 may qualify for exemption, assuming the taxpayer satisfies the other Section 54F requirements.

If the taxpayer invests only ₹1,50,00,000, the exemption would be:

₹2,00,00,000 × ₹1,50,00,000 ÷ ₹3,00,00,000 = ₹1,00,00,000

Section 54F exemption and Capital Gains Account Scheme deadline

If the taxpayer has not used the required amount to purchase or construct the house before the income tax return filing deadline, the unutilised amount should generally be deposited under the Capital Gains Account Scheme, or CGAS.

The deposit must be made on or before the due date for filing the return under Section 139(1) for the relevant assessment year.

For FY 2025-26, the relevant assessment year is AY 2026-27. For a taxpayer not subject to a tax audit, the usual due date under the current framework is 31 July 2026, subject to any extension notified by the Central Board of Direct Taxes.

The taxpayer should:

Open an eligible CGAS account with an authorised bank.
Deposit the unutilised amount before the Section 139(1) return filing deadline.
Report the deposit in the income tax return.
Use the money only for purchasing or constructing the new residential house.
Complete the purchase within two years or construction within three years.

A deposit made after the Section 139(1) due date may not protect the exemption. Taxpayers should therefore not wait until the last day to arrange the deposit.

Type of CGAS account

CGAS generally provides:

Account A, similar to a savings deposit
Account B, similar to a term deposit

The taxpayer should select the account based on the expected timing of the purchase or construction. Bank-specific procedures, forms and interest terms may differ.

If the deposited amount is not used within the permitted period, the unutilised amount may become taxable as long-term capital gain in the year in which the three-year period expires.

Section 54F exemption under the new tax regime AY 2026-27

A taxpayer opting for the new tax regime under Section 115BAC can generally claim exemptions under Sections 54, 54B, 54D, 54EC and 54F, because these are capital gains exemptions under Chapter IV of the Income-tax Act.

The new regime mainly restricts several deductions and exemptions such as many deductions under Chapter VI-A and certain salary-related exemptions. It does not automatically eliminate Section 54F.

However, the taxpayer must still satisfy every Section 54F condition. Choosing the new tax regime does not allow a taxpayer to:

Invest after the statutory deadline
Claim exemption for more than one new house
Ignore the ₹10 crore cap
Claim exemption while owning more than the permitted number of houses
Use the CGAS after the applicable return filing deadline

A taxpayer should compare the final tax liability under the old and new regimes, particularly when capital gains and other income are involved.

Section 54F exemption when owning more than one residential house

Ownership of residential houses is a critical eligibility condition.

On the date of transfer of the original asset, the taxpayer must not own more than one residential house, other than the new house for which the exemption is claimed.

Therefore, a taxpayer who already owns two or more residential houses on the transfer date generally cannot claim Section 54F.

The restriction also continues after the transfer. The exemption may be withdrawn if the taxpayer:

Purchases another residential house within two years after the transfer; or
Constructs another residential house within three years after the transfer

The new house acquired for claiming Section 54F should generally be held for at least three years. If it is transferred before the end of three years, the tax law can withdraw the benefit by reducing the cost of the new house for capital gains purposes.

Joint ownership and multiple houses

Taxpayers should examine:

Whether they hold a share in another residential property
Whether a jointly owned house counts as ownership based on the facts
Whether the property is residential or commercial
Whether a house is acquired through inheritance or gift
Whether another residential house is purchased after claiming the exemption

Because ownership questions can depend on legal and factual details, property documents should be reviewed before claiming a substantial exemption.

Common mistakes while claiming Section 54F

Investing only the capital gain

Section 54F uses the net sale consideration, not just the capital gain, for the proportionate exemption formula. Investing only the capital gain may result in only partial exemption.

Missing the CGAS deadline

An individual who has not purchased or constructed the house must deposit the unutilised amount by the Section 139(1) return filing deadline. A later deposit may not qualify.

Ignoring the ₹10 crore ceiling

Spending ₹12 crore or ₹15 crore on the new house does not increase the amount considered beyond ₹10 crore.

Buying more than one house

Section 54F is intended for investment in one residential house. Buying another residential house during the restricted period can trigger withdrawal of the exemption.

Failing to retain documents

The taxpayer should keep sale deeds, broker statements, share transaction statements, bank records, CGAS documents, purchase deeds and construction evidence.

Section 54F checklist for AY 2026-27

Before claiming the exemption, confirm the following:

Summary

For Section 54F exemption for an individual in AY 2026-27, the taxpayer must reinvest the net sale consideration from a long-term capital asset, other than a residential house, in one residential house in India. The purchase must occur within one year before or two years after the transfer, while construction must be completed within three years. The exemption is proportionate when the taxpayer does not invest the full net consideration, and the amount considered for the new house is capped at ₹10 crore.

An individual claiming Section 54F exemption under the new tax regime AY 2026-27, including Section 54F exemption for long-term capital gains on shares, should verify the ownership conditions, investment calculation and Capital Gains Account Scheme deadline before filing the return.

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