Section 54: Capital gains on sale of residential house

1. Section 54 of Income Tax Act provides for exemption from capital gains on transfer of long-term capital asset being a residential house property subject to following conditions:
   
• Assessee should be either an INDIVIDUAL or HUF
  
• Asset transferred is a long-term ^(#1) capital asset being a RESIDENTIAL house property
  
• Capital gains arising on transfer of such property should be invested in purchasing / constructing one NEW RESIDENTIAL house property. So to get maximum benefit of section 54 exemption, assesse will be required to invest 100% of the capital gains.
  
• New asset purchased / constructed should not be located outside India.
  
• New residential house can be purchased either 1 year before the date of sale or 2 years after the date of sale. In case where new residential house is being constructed, the construction should be completed within 3 years from the date of sale.
  
• In case where whole of the capital gains are not invested in purchase / construction of new residential house, exemption will be limited to the amount invested in purchase / construction of new house and the difference amount not invested will be taxed as capital gains in the year of transfer.
  
• New residential house purchased / constructed should not be sold within 3 years from the date of purchase / construction.
  
• In case where the new residential house is sold within 3 years of the date of purchase or construction, the amount of capital gain previously exempted u/s 54 will be reduced from the cost of acquisition of the new residential house while calculating capital gains at the time of transfer of new residential house property.
  
• With effect from AY 2024-25, the maximum amount of exemption u/s 54 will be restricted to Rs. 10 Crores.
  
  
2. Where the capital gain is less than or equal to Rs. 2 Crores, the taxpayer has a once in a lifetime option to purchase / construct TWO residential house properties while claiming the exemption u/s 54
   
   
3. Where the taxpayer intends to invest the capital gains in purchase / construction of new house, however could not do so, shall deposit the said amount into a Capital Gains Account Scheme of specified bank / institution on or before the due date of filing of return of income u/s 139(1) and claim the benefit of exemption u/s 54. However the amount deposited in CGAS should be utilized for purchase / construction of new house within 2 or 3 years from the date of transfer of original asset otherwise the said amount will be taxed as capital gains of the assessee.
   
   
4. Tax Rates applicable for Capital Gains on Sale of Immovable Property are as under:

Holding Period	Capital Gain Type	Tax Rates
More than 2 Years	Long-term capital gain	20% after indexation (#2)
Less than or equal to 2 Years	Short-term capital gain	Slab Rates

(#1) Long-term capital asset in case of an immovable property is an asset held for more than 2 years from the date of its acquisition / construction

(#2)  Cess & Surcharge as applicable