First, is the gain short term or long term?
Almost everything about your tax depends on this one question, and the answer is not the same for every asset.
- Listed equity shares and equity mutual fundsLong term after more than 12 months
- Unlisted shares, including shares of foreign companiesLong term after more than 24 months
- Land and buildingsLong term after more than 24 months
- Debt mutual funds and goldTreatment depends on when the units were bought, so this one is worth checking rather than assuming
What the rates look like now
The Finance (No. 2) Act 2024 changed several of these with effect from 23 July 2024, so returns spanning that date need care.
- Listed equity, long term (Section 112A)Exempt up to ₹1.25 lakh in a year, then 12.5%
- Listed equity, short term (Section 111A)20% for transfers on or after 23 July 2024
- Unlisted and foreign shares, long term12.5% without indexation
- Land and building, long term12.5% without indexation. Resident individuals and HUFs who acquired the property before 23 July 2024 may instead compute at 20% with indexation and pay whichever is lower
- Short term gains on other assetsAdded to your income and taxed at your slab rate
Section 54, when you sell a house and buy another
Section 54 exempts the long-term capital gain arising on the sale of a residential house, if you reinvest in another residential house in India.
- Purchase within one year before or two years after the sale, or construct within three years
- The exemption is measured against the capital gain, not the full sale value
- Reinvestment eligible for exemption is capped at ₹10 crore
- Where the gain does not exceed ₹2 crore, you may invest in two houses instead of one, and this option is available once in a lifetime
- Selling the new house within three years withdraws the exemption you claimed
Section 54F, when you sell something that is not a house
This is the one most relevant to people sitting on gains from shares, mutual funds, gold or land. Section 54F exempts long-term gains on any capital asset other than a residential house, if you invest in one residential house in India.
The crucial difference: Section 54F is tested against the net sale consideration, not the gain. Reinvest all of it and the whole gain is exempt. Reinvest part of it and you get a proportionate exemption.
The conditions that most often decide whether a claim holds:
- You must not own more than one residential house, other than the new one, on the date of transfer
- You must not buy another residential house within two years, or construct one within three years, of the transfer
- The same one year before and two years after purchase window, or three years to construct, applies
- Reinvestment eligible for exemption is capped at ₹10 crore
- The new house must be in India
If you hold RSUs or ESPP shares in a foreign employer, Section 54F is worth understanding properly, because gains on those shares are eligible. We cover the rest of that picture on our RSU and ESPP tax filing page.
If the money has not been reinvested by your filing date
This is the deadline that quietly costs people their exemption. If you have not completed the purchase or construction by the due date for filing your return, deposit the unutilised amount in a Capital Gains Account Scheme account with a bank before that date. Doing so preserves the exemption and leaves you the remaining statutory window to complete the purchase.
Money left sitting in an ordinary savings account does not qualify, however clearly you intended to use it for a house.
Section 54EC, when buying property is not the plan
For gains from land or buildings, Section 54EC lets you invest up to ₹50 lakh in specified bonds, such as those issued by NHAI, REC, PFC or IRFC, within six months of the transfer. The bonds carry a five year lock-in. It is a smaller relief, but it does not ask you to buy a house you did not want.
Things worth deciding before you sell, not after
Most capital gains planning has to happen before the transaction, which is why we would rather talk to you early than at filing time.
- Whether waiting a few weeks moves a holding from short term to long term
- Using the ₹1.25 lakh annual Section 112A exemption across financial years rather than in one bunch
- Setting off losses correctly, including carrying forward losses, which requires filing on time
- Whether an existing second property blocks a Section 54F claim you were counting on
- Advance tax instalments, so a large gain does not turn into interest under Sections 234B and 234C
How we help
At filing time we compute gains lot by lot from your broker and registrar statements, apply grandfathering where it applies, set off and carry forward losses, and prepare the exemption claim with the supporting working. Before a sale, a one to one tax planning session is usually the better place to start, because the choices that matter most are the ones made before the transaction.
Questions filers ask us
The things people most often want settled before they start.
What is the difference between Section 54 and Section 54F?
Section 54 applies when you sell a residential house and buy another one, and it exempts the capital gain. Section 54F applies when you sell any other long-term asset such as shares, mutual funds, gold or land, and it exempts gains in proportion to how much of the net sale consideration you reinvest in a residential house.
Can I claim Section 54F on gains from selling shares?
Yes, provided the shares were long-term capital assets and you invest the net sale consideration in one residential house in India within the prescribed window. You also cannot own more than one other residential house on the date of transfer. Because the test is on sale consideration rather than gain, partial reinvestment gives you a proportionate exemption.
What if I cannot buy the new house before my ITR due date?
Deposit the unutilised amount into a Capital Gains Account Scheme account with a bank before your return due date. That preserves the exemption and gives you the remaining statutory window to complete the purchase or construction.
How much long-term capital gain on listed shares is tax free?
Long-term capital gains on listed equity shares and equity mutual funds are exempt up to ₹1.25 lakh in a financial year under Section 112A. Gains above that are taxed at 12.5% for transfers on or after 23 July 2024.
Is Section 54EC an alternative to buying a house?
For gains from land or building, yes. You can invest up to ₹50 lakh in specified bonds within six months of the transfer, subject to a five year lock-in. It does not require you to buy property, which makes it useful when a house purchase is not something you want.