Exemptions for Capital Gains in India: Complete Guide

Sections 54, 54 (EC, B,D,G,GA,and GB) and Section 86

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Capital gains tax can significantly impact the net proceeds from selling property or other long term assets. The Income Tax Act, 1961 provides several exemptions against Capital Gains when taxpayers reinvest the gains into specified assets within prescribed timelines. These provisions encourage reinvestment in housing, agriculture, industry, and startups. This guide explains all major exemptions—Sections 54, 54F (Section 86 from AY 2026‑27), 54EC, 54B, 54D, 54G, 54GA, and 54GB—with eligibility, conditions, reinvestment rules, and updated limits for AY 2026-27.

From AY 2026‑27, Section 54F is renumbered as Section 86 under the Income Tax Act, 2025. The underlying exemption rules remain unchanged.

What Are Capital Gains Exemptions Under the Income Tax Act?

Capital gains exemptions allow taxpayers to reduce or eliminate long term capital gains (LTCG) tax by reinvesting the gains or sale proceeds into approved assets such as residential property, agricultural land, industrial assets, or specified bonds. These exemptions apply only to long term assets unless specifically stated.

Feel free to use our ITR 2 Tax Calculator that computes the taxes on capital gains in addition to other income such as salary. Other calculators only support the computation of capital gains in isolation. The computation becomes complex when capital gains are on top of your salary income. Our ITR 2 calculator helps you do that efficiently and is a key differentiator.

Learn How to Maximize Capital Gains in 2026.

Learn How Capital Gains Are Taxed In India. Know more on tax rates, addition of Capital gains to slab income and Rebate under section 87A.

Learn What Advance Taxes In India Are.

Section 54 – Exemption on Sale of Residential House

Eligibility

Who can claim: Individuals and HUFs

Asset sold: Long term residential house (held for more than 24 months)

Reinvestment asset: Another residential house in India

Key Conditions

• Purchase a new house within 1 year before or 2 years after the sale, or construct within 3 years.
• Exemption is the lower of:
  • Capital gain
  • Amount invested
  • ₹10 crore cap (applicable from AY 2026-27)
• Exemption allowed for one property.

  Once in a lifetime, if capital gains ≤ ₹2 crore, exemption can be claimed for two properties.

• Unutilized gains can be deposited in the Capital Gains Account Scheme (CGAS).

Time limits

• New property sold within 3 years.
• CGAS amount not utilized within the allowed period.

Section 86 (Section 54F): Exemption on Sale of Long-Term Capital Assets

From AY 2026‑27, Section 54F is renumbered as Section 86 under the Income Tax Act, 2025. The underlying exemption rules remain unchanged.

Who can claim: Individuals and HUFs

Asset sold: Any long term capital asset other than a house (e.g., land, gold, shares)

Reinvestment asset: Residential house in India

Key Conditions

• Entire net sale consideration (not just capital gains) must be reinvested.
• Exemption is proportionate to the amount invested, capped at ₹10 crore.
• On the date of transfer, the taxpayer must not own more than one residential house (excluding the new one).
• New property must be held for at least 3 years.

Section 54EC: Exemption Through Specified Bonds

Who can claim: Any assessee

Asset sold: Long term land or building

Reinvestment asset: Bonds issued by NHAI, REC, PFC, or other notified entities

Key Conditions

• Investment must be made within 6 months of transfer.
• Maximum investment eligible: ₹50 lakh per financial year.
• Bonds have a 5 year lock in.
• Early redemption leads to withdrawal of exemption.

Section 54B: Exemption on Sale of Agricultural Land

Who can claim: Individuals and HUFs

Asset sold: Agricultural land used for agriculture for 2 years before sale

Reinvestment asset: Another agricultural land

Key Conditions

• New agricultural land must be purchased within 2 years.
• Exemption is the lower of capital gains or investment amount.
• Selling the new land within 3 years revokes the exemption.

Section 54D: Exemption for Compulsory Acquisition of Industrial Land/Building

Who can claim: Any assessee

Asset sold: Industrial land or building compulsorily acquired

Reinvestment asset: New land/building for shifting or re establishing the undertaking

Key Conditions

• Reinvestment must be completed within 3 years.
• Exemption equals the lower of capital gains or investment.
• Selling the new asset within 3 years cancels the exemption.

Sections 54G & 54GA: Shifting of Industrial Undertakings

Section 54G – Shift from Urban to Non Urban Area

Section 54GA – Shift to Special Economic Zone (SEZ)

Who can claim: Any assessee

Assets covered: Land, building, plant, machinery

Key Conditions

• Investment allowed 1 year before or 3 years after transfer.
• Exemption equals the lower of capital gains or investment in new assets.

Section 54GB: Exemption on Investment in Eligible Startups

Who can claim: Individuals and HUFs

Asset sold: Long term residential property

Reinvestment asset: Equity shares of eligible startups or companies

Key Conditions

• Company must use the funds to purchase plant/machinery.
• Maximum exemption: ₹50 lakh per financial year.
• Shares must be held for 3 years.
• Early sale or non utilization leads to withdrawal.

Capital Gains Account Scheme (CGAS)

CGAS allows taxpayers to temporarily park unutilized capital gains until reinvestment is completed.

Key Points

• Deposit required before the due date of filing ITR.
• Funds must be used within the prescribed time limits.
• Unused amounts become taxable after expiry.

Comparison of Various Exemptions Against Capital Gains

Important Considerations for Taxpayers

• Short term capital gains do not qualify for these exemptions.
• Maintain documentation for cost, improvements, transfer expenses, and reinvestment.
• CGAS deposits must be made on time to avoid losing exemptions.
• Budget 2024 introduced:
  • ₹10 crore cap for Sections 54 and 54F (Section 86 from AY 2026‑27)
  • LTCG tax rate of 12.5% (post 23 July 2024) without indexation for new properties

FAQs on Exemptions for Capital Gains

Q. What are the main exemptions for capital gains in India?

A. The Income Tax Act provides several exemptions for capital gains to help taxpayers reduce tax liability when they reinvest the gains in specified assets. The most commonly used exemptions are under Section 54, Section 54F, Section 54EC, and Section 54B of the Income Tax Act. These exemptions typically apply when the taxpayer reinvests the capital gains in residential property, specified bonds, or agricultural land within the prescribed time limits.

From AY 2026‑27, Section 54F is renumbered as Section 86 under the Income Tax Act, 2025. The underlying exemption rules remain unchanged.

Q. How can I get exemptions on capital gains tax on property?

A. Capital gains tax on property can often be reduced or avoided by claiming exemptions available under Section 54 or Section 54F. Under these provisions, the taxpayer must reinvest the capital gains in a residential house within the specified time period. If the conditions of these sections are satisfied, the capital gains may be partially or fully exempt from tax.

From AY 2026‑27, Section 54F is renumbered as Section 86 under the Income Tax Act, 2025. The underlying exemption rules remain unchanged.

Q. What is the exemption available under Section 54?

A. Section 54 provides exemption from capital gains tax when a taxpayer sells a residential property and reinvests the capital gains in another residential house. The new property must generally be purchased within 2 years from the date of sale or constructed within 3 years. If the entire capital gain is reinvested, the whole gain may be exempt from tax.

Q. What is the exemption available under Section 86?

A. Section 86 allows exemption from capital gains tax when a taxpayer sells any long-term capital asset other than a residential house and invests the sale proceeds in a residential property. The exemption is proportional to the amount invested in the new house relative to the sale consideration.

From AY 2026‑27, Section 54F is renumbered as Section 86 under the Income Tax Act, 2025. The underlying exemption rules remain unchanged.

Q. What is Section 54EC capital gains exemption?

A. Section 54EC provides exemption from capital gains tax when the gains arising from the sale of land or building are invested in specified bonds issued by certain government-approved institutions. The investment must be made within six months from the date of transfer, and the bonds have a five-year lock-in period.

Q. What is the Capital Gains Account Scheme (CGAS)?

A. If a taxpayer is unable to reinvest the capital gains before the due date for filing the income tax return, the amount can be deposited in the Capital Gains Account Scheme (CGAS) with a designated bank. This allows the taxpayer to preserve eligibility for capital gains exemptions while completing the investment within the allowed time limit.

Q. Can capital gains exemptions be claimed for multiple properties?

A. In certain situations, capital gains exemption under Section 54 may be claimed for investment in two residential houses, subject to conditions and limits prescribed in the Income Tax Act. However, this option is generally available only once in a lifetime and only when the capital gains are within the specified limit.

Q. What happens if the new asset is sold before the lock-in period?

A. If the new asset purchased for claiming capital gains exemption is sold before the specified lock-in period, the exemption claimed earlier may be withdrawn. In such cases, the exempted capital gains may become taxable in the year in which the new asset is transferred.

Conclusion

Capital gains exemptions offer powerful tax saving opportunities, but they require careful planning, timely reinvestment, and strict compliance with conditions. Understanding the reinvestment timelines, caps, and CGAS rules ensures that taxpayers can maximize benefits while staying fully compliant.