Selling shares often results in significant long-term capital gains, and many investors worry about the tax burden on such profits. The good news is that the Income Tax Act offers a way to save tax legally through Section 54F, provided certain conditions are met.
Recently, a common query came from a Noida-based investor, Sujit Pandey, who earned long-term capital gains last year from selling shares. He already owns one house but wanted to know whether he could claim tax exemption by purchasing another residential property with those gains. Tax expert Balwant Jain explained the details of how Section 54F works and what investors should keep in mind.
Under Section 54F of the Income Tax Act, an individual or Hindu Undivided Family (HUF) can claim exemption on long-term capital gains arising from the transfer of any asset (except a residential house). The exemption is allowed only if the gains are invested in a new residential property within a prescribed time frame.
Ready-to-move property: Must be purchased within 2 years from the date of sale.
Under-construction property: Must be completed or acquired within 3 years of sale.
Already purchased property: If the house was bought up to 1 year before the sale, exemption is also permitted.
This flexibility ensures that investors can plan their real estate investments in advance while saving on taxes.
There is a ceiling for this benefit. According to the latest rules, Section 54F exemptions are capped at investments up to ₹10 crore. Any amount exceeding this limit will not qualify for tax relief.
For example, if an investor sells shares and earns capital gains of ₹12 crore, only ₹10 crore used for purchasing or constructing a residential property will be considered for exemption. The balance amount will remain taxable.
What happens if you cannot immediately invest the capital gains in property before the income tax return filing deadline? The law has a solution. Taxpayers can deposit the unutilized gains in a Capital Gains Account Scheme (CGAS) with a bank.
The deposited amount can then be used later to buy or construct a house within the specified period. This ensures that you remain eligible for exemption even if the property purchase is delayed.
For assessment year 2025–26, the due date for filing income tax returns is September 15, 2025. If the investment is not made by then, depositing the gains into a CGAS account becomes essential.
One critical point to note is that Section 54F exemption is not available if the taxpayer owns more than one residential property (other than the new one being purchased). Since Sujit Pandey owns only one house at present, he is eligible to claim the exemption by investing his long-term capital gains in another residential property.
Section 54F helps save tax on long-term capital gains from selling shares or other non-residential assets.
Investment must be in a new residential house within the allowed time frame (1 year before or up to 3 years after the sale).
Exemption is capped at ₹10 crore.
If not invested before the return filing deadline, deposit the gains in a Capital Gains Account Scheme.
The taxpayer should not own more than one other house at the time of claiming the exemption.
For investors earning substantial profits from the stock market, Section 54F provides a valuable way to legally minimize tax liability. However, compliance with timelines, investment caps, and property ownership rules is crucial. Consulting a tax advisor before making large investments is always recommended to avoid costly mistakes.
