Purchasing a house is one of the most significant and life-changing decisions for most of us, but it is extremely difficult as well because of the ever-increasing market values of properties. To manage finances well and plan for such big and heavy purchases, people usually invest their money in different investment options, one of which is Mutual Funds, which people usually plan to redeem at the time of purchasing a house, but taxes on Long-Term Capital Gains (LTCG) accumulate and eat up people’s funds.
However, people can still save themselves from these taxes by taking the help of Section 54F of Income Tax Act. This section is extremely helpful and relevant when it comes to purchasing a house, as it helps people reduce taxes on Long-Term Capital Gains.
Read the article to learn more about Section 54F of Income Tax Act, ranging from its meaning to the conditions that make its use possible.
Overview
The table below summarises some key details about the Section 54F exemption in new tax regime that one should know.
| Name of the section | Section 54F of Income Tax Act |
|---|
| Applies to | Long-Term Capital Gains from the sale of assets other than a residential property |
| Main benefit | Exemption from taxes on Long-Term Capital Gains if money from a sale is reinvested in purchasing a house |
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What Is The 54F Income Tax Act?
Section 54F of Income Tax Act provides tax exemption on Long-Term Capital Gains that come from the sale of any assets other than a residential property, such as mutual funds, equity shares, jewellery, or others. Please note that people can only avail the benefits of the Section 54F exemption in new tax regime if the money from the sale is reinvested and used in the purchase of a residential property.
Some other things people need to keep in mind concerning Section 54F of Income Tax Act are as follows:
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One can only buy 1 residential property within a year or 2 years, or finish construction within 3 years after the sale of the asset.
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When one is selling their mutual fund or other assets, they should not own more than one residential property.
How To Avail Of Section 54F Exemption In New Tax Regime?
There are some 54F exemption conditions that individuals need to understand to properly avail the benefits of the 54F income tax act. All the conditions are described below in detail for one’s better understanding:
1. Type of Asset
Section 54F of Income Tax Act is only applicable if the individuals sell a non-residential property, like mutual funds, equity shares, jewellery, or others. Please note that if anyone sells a residential property, they would not be able to avail the benefits of the Section 54F exemption in new tax regime, but only the Section 54 of Income Tax Act, which is a bit different than Section 54F.
2. Timing
It is extremely crucial to take care of the timings as mentioned in the Income Tax Act to properly optimise the 54f deduction. Individuals need to buy one residential property within a year or 2 years, or finish construction within 3 years after the sale of the asset. It is advisable to tightly adhere to the given deadlines.
Also Read: 20 Easy Ways to Save Income Tax In 2025
3. Ownership
One of the 54F exemption conditions is that individuals should not own more than one residential property (excluding the one they are planning to buy) when they sell their mutual funds. If you own several residential properties, you will be excluded from using the benefits of this section.
4. Utilisation of Full Investment
To avail the benefits of the 54f deduction, people are required to invest the complete amount that they receive at the time of sale of assets other than residential property. However, if anyone does not use it before the filing of their Income Tax Return (ITR), they would need to deposit the rest in a Capital Gains Account.
After the fulfilment of all the 54F exemption conditions, individuals can avail the benefits of Section 54F. The rough step-by-step process is laid out below for one’s reference:
Step 1: Begin by redeeming the mutual fund units and calculating the exact amount of Long-Term Capital Gains using a Section 54f exemption calculator.
Step 2: Align the purchase or construction of a residential property as per the deadlines mentioned in the 54F exemption conditions.
Step 3: Invest the complete sale amount into the purchase or construction of a residential property. If any amount is left, deposit it into a Capital Gains Account.
Step 4: File and report all the details in your Income Tax Return statement with supporting documents.
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Section 54F Of Income Tax Act With Example
Consider Daksh, an investor who recently sold his shares worth Rs. 50 lakh in September, 2025. Let's look at the conditions that this investor needs to fulfil to claim the Section 54F exemption on sale of shares:
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Daksh is planning on buying a house towards the end of this year. i.e., December 2025, which is within the timeframe of 2 years of selling the asset. Here, an exemption can be claimed if Daksh reinvests the entire 50 lakh in purchasing or constructing his house.
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However, if he invests only 30 lakh, the exemption would be based on the invested amount only. Daksh has deposited the remaining 20 lakh into a Capital Gains Account before filing his Income Tax Return, in compliance with the guidelines.
Because Daksh has fulfilled all the conditions that were needed to avail the Section 54F exemption on sale of shares, he will be able to enjoy the tax benefits given under Section 54F of the Income Tax Act and build his house.
Conclusion
Section 54F of Income Tax Act is one of the most beneficial sections that people can use when purchasing or constructing a residential property. To legally avail and use the benefits of the Section 54f exemption limit, people are advised to go through all the prescribed conditions carefully and accurately, and ensure to fulfil all of them, including the strict timelines of purchase or construction.
We also urge you to keep yourself updated and educated about the various provisions of the Income Tax Act, as the tax laws can only help those who learn how to use them in the best possible way.
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