Capital Gains Exemptions Under the Income Tax Act 1961: Comprehensive Coverage of Sections 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA, and 54GB

The Income Tax Act 1961 provides a robust framework of exemptions designed to reduce or eliminate the capital gains tax burden on assessees who reinvest their sale proceeds into specified assets. These provisions recognise that reinvestment of capital is a productive economic activity and accordingly offer relief from taxation when certain prescribed conditions are met. This guide presents a consolidated, section-wise breakdown of all major capital gains exemption provisions, including eligibility criteria, qualifying assets, permissible reinvestments, exemption limits, investment deadlines, Capital Gains Account Scheme (CGAS) requirements, and conditions that may trigger withdrawal of the exemption.

Important Note: This guide incorporates amendments introduced by the Finance Act, 2026, including the Rs. 10 crore investment cap under Section 54 and Section 54F applicable from Assessment Year 2024-25, as well as the notification of HUDCO bonds under Section 54EC.

Overview of Capital Gains Exemption Framework

Capital gains arising from the transfer of a capital asset are ordinarily chargeable to tax under the Income Tax Act 1961. However, the legislature has carved out several exemption provisions under Chapter IV to encourage productive reinvestment. These exemptions operate on a conditional basis — the assessee must reinvest the capital gains (or in some cases, the entire net consideration) into a specified new asset within a defined timeframe.

The key sections governing these exemptions are:

  • Section 54 — Residential house property (Individuals and HUFs)
  • Section 54B — Agricultural land (Individuals and HUFs)
  • Section 54D — Industrial undertaking assets (All assessees)
  • Section 54EC — Specified long-term bonds (All assessees)
  • Section 54EE — Units of notified funds (All assessees)
  • Section 54F — Any long-term capital asset other than residential property (Individuals and HUFs)
  • Section 54G — Industrial undertaking shifting to non-urban area (All assessees)
  • Section 54GA — Industrial undertaking shifting to SEZ (All assessees)
  • Section 54GB — Residential property reinvested in eligible start-up or company shares (Individuals and HUFs)

Part I: Exemptions Available to Individuals and HUFs

Section 54 — Exemption on Transfer of Residential House Property

Eligible Assessee: Individuals and Hindu Undivided Families (HUFs)

Qualifying Capital Asset: A residential house property

Nature of Capital Gains: Long Term Capital Gains (LTCG) only

Permissible Reinvestment: Another residential house property located in India

Quantum of Exemption:
The exemption is restricted to the lower of:

  • The amount of long-term capital gains arising on transfer; or
  • The amount actually invested in the new residential house property, including any sum deposited in the Capital Gains Account Scheme (CGAS)

Note 1: The cost of the new asset cannot exceed Rs. 10 crore. Where no direct investment has been made and the amount is instead deposited in CGAS, the maximum ceiling of Rs. 10 crore shall still apply for computing the exemption. This restriction is applicable from Assessment Year 2024-25.

Investment Timeline:

  • Purchase: 1 year before or 2 years after the date of transfer
  • Construction: Within 3 years from the date of transfer

CGAS Deposit Deadline: On or before the due date for filing the return of income

Conditions for Withdrawal of Exemption:

  • The amount deposited in CGAS remains unutilised within the prescribed period
  • The new residential house property is transferred within 3 years of its acquisition or construction

Section 54B — Exemption on Transfer of Agricultural Land

Eligible Assessee: Individuals and Hindu Undivided Families (HUFs)

Qualifying Capital Asset: Agricultural land

Nature of Capital Gains: Both Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG)

Permissible Reinvestment: Purchase of another agricultural land

Quantum of Exemption:
The exemption is the lower of:

  • The total capital gains (long-term or short-term); or
  • The amount invested in the new agricultural land, including deposits made in CGAS

Investment Timeline: Within 2 years after the date of transfer of the original agricultural land

CGAS Deposit Deadline: On or before the due date for filing the return of income

Conditions for Withdrawal of Exemption:

  • CGAS deposit not utilised within the prescribed time
  • Transfer of the newly acquired agricultural land within 3 years of its purchase

Section 54F — Exemption on Transfer of Any Long-Term Capital Asset (Other Than Residential House Property)