Quick answer
How do I avoid capital gains tax when I sell property?
Sell a house and buy another in India within the time limits, and the gain is exempt under Section 54. Sell a plot, shares, gold or any other asset and put the full sale money into a house, and it is exempt under Section 54F. If the money is not invested by the time you file your return, park it in a Capital Gains Account or the exemption is lost.
First, how much tax is at stake
Property held for more than 24 months gives a long-term capital gain. For sales on or after 23 July 2024 the tax is 12.5% of the gain, without indexation. If you are a resident and bought the property before that date, you can instead pay 20% on the indexed gain, whichever works out lower. NRIs get the 12.5% rate only. On a ₹60 lakh gain that is ₹7.5 lakh of tax, which is what the two exemptions below are designed to save.
Section 54: you sold a house and are buying a house
Section 54 applies when you sell a residential house and buy another residential house in India within one year before or two years after the sale, or construct one within three years. The exemption is the gain or the cost of the new house, whichever is lower.
Example: your gain is ₹50 lakh and the new house costs ₹70 lakh. The whole gain is exempt. If the new house costs ₹30 lakh, ₹30 lakh is exempt and 12.5% is paid on the remaining ₹20 lakh. Only the gain needs to be reinvested, not the full sale price.
Section 54F: you sold something else and are buying a house
Section 54F covers the sale of any other long-term asset: a plot of land, a shop, listed shares, mutual funds, gold. The difference is that you must invest the full sale amount, not just the gain, in one residential house in India within the same time limits.
Example: you sold a plot for ₹1 crore that cost you ₹40 lakh, a gain of ₹60 lakh. Buy a house for ₹1 crore or more and the whole ₹60 lakh is exempt. Buy one for ₹50 lakh, half the sale amount, and half the gain, ₹30 lakh, is exempt.
One extra condition: on the day you sell, you must not own more than one other residential house.
The Capital Gains Account, and the deadline most people miss
You rarely find the new house before your return is due. The law allows this, provided the unspent amount is deposited in a Capital Gains Account with a bank before the due date for filing your return, usually 31 July. You then draw on that account to pay for the house. Money still unused when the three years run out is taxed in that year. Miss the deposit, and the exemption is gone even if you buy a house later.
Four conditions that catch people out
- The new house must be in India.
- Do not sell the new house within three years, or the exemption is reversed.
- The cost counted for the new house is capped at ₹10 crore.
- Under Section 54 only, if the gain is up to ₹2 crore, you can split it across two houses, once in a lifetime.
If you would rather not buy property, up to ₹50 lakh of the gain from land or buildings can go into Section 54EC bonds (REC, PFC, IRFC) within six months of the sale, locked in for five years.
If you are an NRI
Both exemptions are available to NRIs, as long as the new house is in India. The practical problem is different: the buyer must deduct TDS on your full sale price, not on the gain, so a large sum sits with the department until your refund. A lower deduction certificate applied for before the sale fixes this. See our NRI property sale page for how that works.
What changed on 1 April 2026
For sales up to 31 March 2026, these are Sections 54 and 54F of the Income-tax Act 1961. From 1 April 2026 the new Income-tax Act 2025 applies: Section 54 is now Section 82 and Section 54F is now Section 86, with the same conditions.
Common questions
Can I buy the new house in my spouse's or child's name?
The safe route is your own name, alone or jointly with you. Purchases purely in another person's name have been challenged by the department.
Does a flat booked with a builder count?
Yes, as construction, so the three-year window applies, and possession should be within it.
What we do
We work out the gain from your sale deed and purchase documents, tell you exactly how much must go into the new house or the Capital Gains Account and by when, and file the return with the exemption claimed. For NRIs we also handle the lower deduction certificate before the sale.
Need help with this?
Our capital gains filing service covers exactly this. Free first consultation, and a clear quote before any work starts.
Keep reading
Buying property over ₹50 lakh? TDS is your problem, not the seller's
Most first-time buyers assume TDS is the seller's or the bank's job. It is neither. Here is what you need to do, step by step.
Read article NRI taxDo NRIs need to file an income tax return in India?
When an NRI must file, when filing is only worth it for the refund, which form to use and the due date.
Read article