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        From Founder's Desk
        11 May 2026
      
    
  

  
  
    Expert Insights
    

# Section 54F - Top class weapon to avoid LTCG

  

  
    ![Mangesh Zope](../../assets/founder.jpeg)
    
      

Mangesh Zope

      

Founder, Peaceful Loans · IIM Calcutta Alumnus

    
  

  
    ![Section 54F Illustration](thumbnail.jpg)
  

  
  
    

In this day and age, where the govt wants us to curb our usage of fuel, purchase of gold, foreign travel etc so that INR to USD balance can be maintained. But they will put more direct and indirect taxes burden on this salaried class. The 12.5% Long-Term Capital Gains (LTCG) tax rate is effective for transactions made on or after July 23, 2024.

    

In such instances, one needs to be smart with his or her taxes. If there is an unknown advantages by understanding section 54F, Peaceful-Loan's customers better be on the right side of information asymmetry.

    
      ![Section 54F Detailed Infographic](infographic.jpg)
      

Visual guide to Section 54F tax strategy and impacts

    

    

Fundamentally, section 54F allows you to knock off your LTCG in other asset classes like equity, mutual fund etc against purchase of the property. This can be done even if you take a home loan. You know what to know how? This can save you max of 1.25cr. As the deduction limit is 10 cr.

    

> Fun fact this deduction limit used to be unlimited that is why the prices in DLF camalia to save taxes on equity sold by big business people. Second degree impact salaried class cant afford a decent home in Gurgaon. They are priced out + they don't have information about section 54F.

    

Section 54F of the Income Tax Act, 1961 provides tax exemption on long-term capital gains (LTCG) arising from the sale of any capital asset other than a residential house, provided the sale proceeds are reinvested in a new residential property.

    

## Key Features of Section 54F

    

      
- **Eligibility:** Applicable to individuals and Hindu Undivided Families (HUFs). The asset sold should be a long-term capital asset (held for more than 36 months) and not a residential house property.
      
- **Qualifying Conditions:** The taxpayer must purchase or construct a new residential house:
        

          
  - Purchase: Within 1 year before or 2 years after the date of transfer of the original asset.
          
  - Construction: Completed within 3 years from the date of transfer of the original asset.
        

      
      
- **Exemption Amount:** The entire net consideration (sale proceeds) from the original asset must be invested in the new residential property to get a full exemption. Max 10 Cr from 01.04.2024. If only part of the net consideration is invested, then the exemption is calculated as follows:
        

        *Exemption = Capital Gain × (Amount Invested / Net Sale Consideration)*
      
      
- **Restrictions:**
        

          
  - The taxpayer should not own more than one residential house (other than the new house) on the date of transfer of the original asset.
          
  - The taxpayer must not purchase any additional residential property (other than the new house) within 2 years from the date of transfer.
          
  - If the new property is sold within 3 years of purchase/construction, the exemption is reversed and the LTCG from the sale of the original asset becomes taxable.
        

      
    

    

**Deposit in Capital Gains Account Scheme (CGAS):** If the capital gains are not utilized for the purchase/construction of the new property before the due date of filing the income tax return, the amount must be deposited in a Capital Gains Account Scheme (CGAS). The amount deposited must be used only to purchase/construct the property within the prescribed period; otherwise, it is taxed as income.

    

**Exemption Calculation Example:** Suppose you sell a plot of land with an LTCG of ₹20 lakh and invest ₹15 lakh in a new residential house. The exemption would be calculated as:

    *Exemption = 20 lakh × (15 lakh / Sale Consideration)*

    

**One Residential House Limitation:** The exemption is available for only one residential property purchased/constructed in India.

    

**Applicability in Case of Joint Owners:** If two or more persons jointly own a capital asset, each may claim Section 54F for their share of the capital gain, provided they fulfill the conditions independently.

    

This section encourages taxpayers to invest in residential housing, especially those selling non-residential or other capital assets, offering significant tax-saving opportunities. Let me know if you'd like any more details or examples!

    

Read more such blogs on our website's from the founder's desk section.

  

  
  
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