How can I save capital gains tax on selling property?

1Section 54 — reinvest in another house

If you sell a residential house held long-term and reinvest the capital gain in another residential house in India, the gain is exempt to the extent reinvested. The time limits:

• Buy the new house within 1 year before or 2 years after the sale
• Or construct a new house within 3 years of the sale
• The exemption is limited to one house (you can claim it for two houses once in a lifetime if the gain is up to ₹2 crore)

2Section 54F — sell any asset, buy a house

Section 54F is for when you sell a long-term asset that isn't a house — like shares, gold or a plot — and reinvest in a residential house. The difference from Section 54:

• You must reinvest the NET SALE PROCEEDS (not just the gain) to get the full exemption
• If you reinvest only part, the exemption is proportionate
• You shouldn't own more than one other house on the date of sale

3Section 54EC — capital gains bonds

If you don't want to buy another property, you can invest the long-term gain in specified bonds (NHAI, REC, PFC, IRFC) and claim exemption under Section 54EC:

• Invest within 6 months of the sale
• Maximum ₹50 lakh per financial year
• The bonds have a 5-year lock-in and pay modest interest (which is taxable)

4The Capital Gains Account Scheme (CGAS)

What if you intend to reinvest but haven't found a property by the time your ITR is due? You don't lose the exemption — deposit the unutilised gain in a Capital Gains Account Scheme (CGAS) with a bank before the ITR due date.

You then use that money for the purchase or construction within the allowed period (2 or 3 years). If you don't use it in time, the unused amount becomes taxable in that later year.

5The ₹10 crore ceiling on sections 54 and 54F

Both exemptions were uncapped until recently, which allowed very large gains to be sheltered entirely by buying a single expensive property.

From assessment year 2024-25 the cost of the new house taken into account is capped at ₹10 crore. Investment above that figure simply does not increase the exemption — the excess is ignored in the computation.

The cap applies to the new asset's cost, not to the gain, so it bites on high-value purchases rather than on high-value gains as such. For most transactions it changes nothing; for the top end it changes the whole plan.

6The two-house option, and that it is once in a lifetime

Section 54 ordinarily requires the gain to be reinvested in one residential house. There is an exception, and it is genuinely once only.

Where the long-term capital gain does not exceed ₹2 crore, you may invest in two residential houses in India and claim the exemption against both. The option can be exercised only once in a lifetime — having used it, you cannot use it again in any later year.

If the gain exceeds ₹2 crore the option is unavailable entirely, not merely restricted, so the whole gain must go into a single house to be sheltered.

7Joint ownership: who claims what

Where a property is jointly owned, the capital gain is assessed in each co-owner's hands in proportion to their share, and each claims exemption separately.

The exemption follows the person, not the property. A co-owner who reinvests their share claims exemption on their share; a co-owner who does not, pays tax on theirs. One owner cannot claim the whole exemption by reinvesting the entire proceeds.

Where the property was funded by one spouse but held jointly for convenience, the income-tax position generally follows the source of funds rather than the name on the deed, and clubbing provisions can apply.

8What undoes the exemption later

Claiming the exemption is not the end of the obligation. Two things can reverse it in a later year.

If the new house is sold within three years of purchase or construction, the exemption previously allowed is withdrawn — in effect, the earlier gain is brought back by reducing the cost of the new property, which increases the gain on the second sale. For section 54EC bonds, transferring or taking a loan against them within five years has the same effect.

Under section 54F there is a further condition: the exemption is withdrawn if you purchase another residential house within two years, or construct one within three years, of the original transfer.