Section 54: capital gains tax when you sell to buy a new flat

3.17.1 What is section 54, and who is it for?

Section 54 is the income tax rule that lets you skip tax on long-term capital gains from selling a residential house, if you buy or build another residential house in India. It is for a seller-buyer who sells a house, often a resale flat, and uses the money to buy a new flat from a builder. The old asset you sell must be a residential house. Under the Income-tax Act, 2025, section 82 calls it “profit on sale of property used for residence”. For transfers before 1 April 2026, section 54 of the Income-tax Act, 1961 applies. From tax year 2026-27, section 82 of the 2025 Act applies, with the same conditions. Section 1(3) of the 2025 Act fixes the commencement date: “Save as otherwise provided in this Act, it shall come into force on the 1st April, 2026.” So the date you sign and register the sale deed for your old house decides which Act’s section you use, not the date you buy the new flat.

Point	Income-tax Act, 1961	Income-tax Act, 2025
Section	54	82
Applies to a transfer	Before 1 April 2026	On or after 1 April 2026 (tax year 2026-27 onward)
Who can claim	Individual or Hindu undivided family (HUF)	Individual or Hindu undivided family (HUF)
Old asset	Long-term residential house (buildings or land with it)	Same
New asset	One residential house in India (two if gain ≤ ₹2 crore)	Same

Section 536(2) of the 2025 Act repeals the 1961 Act, but keeps the 1961 Act’s procedure running for a proceeding, such as an assessment or appeal, on a tax year that began before 1 April 2026.

3.17.2 Which conditions must you meet to use section 54?

You must sell a long-term residential house and buy or build one new residential house in India within the time the law sets. Section 82(1)(a) of the 2025 Act requires “long-term capital gains arising from the transfer of a capital asset, being buildings or lands appurtenant thereto, and being a residential house”. The gain must come under the head “Income from house property”. Section 82(1)(b) sets the time limit for the new flat: “within one year before or two years after the date of such transfer purchased, or … within three years after that date constructed”. An under-construction flat gets the 3-year window to finish. The new asset must be “one residential house in India”, unless you use the two-house option below.

Two more rules cap the benefit. Section 82(7) says: “If the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of sub-section (1).” Section 82(8) sets the same ₹10 crore cap on the gain side, for a deposit under the Capital Gains Accounts Scheme. The Finance Act, 2023 added this cap to the 1961 Act’s section 54 too, with effect from 1 April 2024. Clause 25 of the Finance Bill, 2023 inserted a proviso: “where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of this sub-section.” So in both Acts, you lose the exemption on any part of the new flat’s cost above ₹10 crore.

Condition	Income-tax Act, 2025 section	Income-tax Act, 1961 section
Long-term residential house, income under house property head	82(1)(a)	54(1)
Buy within 1 year before or 2 years after, or construct within 3 years	82(1)(b)	54(1)
₹10 crore cap on cost of new asset	82(7)	54(1), third proviso (from 1 April 2024)
₹10 crore cap on CGAS deposit	82(8)	54(2), added proviso (from 1 April 2024)
Two-house option if gain ≤ ₹2 crore, one-time	82(5), 82(6)	54(1), second proviso

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3.17.3 Can you buy or build two flats instead of one?

Yes, but only once in your life, and only if the capital gains from the old house is ₹2 crore or less. Section 82(5) of the 2025 Act says: “If the capital gains under sub-section (1) does not exceed two crore rupees, the assessee may, at his option, purchase or construct two residential houses in India.” If you choose this, section 82(5)(a) and (b) read “one residential house in India” as “two residential houses in India” for the rest of the section. Section 82(6) then blocks a repeat: once you use this option in a tax year, you “shall not be entitled to exercise such option for the same tax year or any other tax year.” So treat the two-house choice as a single lifetime option. Use it only when you are certain, because you cannot undo it or use it again later for a different sale.

1. Check your long-term capital gains from the old house sale.
2. If the gains are ₹2 crore or less, decide if you want one new flat or two.
3. If you choose two flats, use this option only this one time, for this one sale.
4. Keep both purchase or construction records, because both count toward the ₹10 crore cap together.

3.17.4 Does buying an under-construction flat from a builder count as “construction”?

An allotment of a flat by a builder, where you pay in instalments as construction proceeds, is commonly treated as construction, not purchase, for the 3-year window. Sachi could not open CBDT Circular No. 471 (15 October 1986) or Circular No. 672 (16 December 1993) this session; incometaxindia.gov.in blocked every request, so Sachi cannot quote their text here. Ask a chartered accountant to confirm how your allotment letter is treated, in writing, before you rely on the 3-year period instead of the 2-year purchase period.

Section 82(1)(b) gives you 3 years after the transfer of the old house to construct the new one, but it does not define when construction “starts” for an allotment. Sachi did not find a stated grace period for an overrun in either Act. Read the under-construction vs ready-to-move guide for builder payment stages. A K-RERA complaint is a separate remedy for the builder’s delay itself, not the tax time limit. Ask a chartered accountant how a builder delay affects your claim.

3.17.5 What if you cannot buy the new flat before you file your tax return?

Deposit the unused gain in a Capital Gains Accounts Scheme, 1988 account before your tax return due date. This is separate from the TDS your builder deducts on the new flat’s purchase price. Section 82(2) of the 2025 Act sets this out for gains “not used by the assessee to purchase the new asset within one year before the date of transfer of the original asset”, or not yet used for construction, “before filing the return of income under section 263”. Section 82(2)(a) says the unutilised amount must be “deposited in a specified bank or institution and utilised as per the scheme notified by the Central Government”. Section 82(2)(b) sets the deadline: “before the filing of the return and not later than the due date applicable … for filing the return of income under section 263(1)”. For most individual taxpayers who do not need an audit, section 263(1)(c), Table serial 5, sets that due date as 31 July. Section 82(2)(c) adds that you submit proof of the deposit with your return.

If you do not use the deposited amount within the time the law allows, it becomes taxable. Section 82(4)(a) says the unutilised amount is “charged to tax under section 67 as the income of the tax year in which the period of three years from the date of the transfer of the original asset expires”. Sachi did not open the text of the Capital Gains Accounts Scheme, 1988 itself this session, so the account types, bank list and withdrawal paperwork are not covered here. Confirm these with your bank before you deposit.

1. Sell the old house and calculate the long-term capital gains.
2. If you have not bought or built the new flat by the time you file your return, open a Capital Gains Accounts Scheme account at a bank.
3. Deposit the unused gain before your return due date, usually 31 July.
4. Submit proof of the deposit with your tax return.
5. Use the deposit to pay the builder within the law’s time limit, and keep every payment receipt.

3.17.6 How long must you hold the new flat before selling it?

You must hold the new flat for at least 3 years from when you bought or built it, or the tax you saved is added back. Section 82(1)(i) and (ii) of the 2025 Act set the mechanism. If you sell the new flat “within three years of its purchase or construction”, its cost for that resale is treated as nil, or reduced by the capital gains you did not pay tax on earlier. This usually makes your resale gain bigger. It can also turn a later sale into a short-term gain if you held the new flat under 24 months, which loses the lower long-term tax rate. The 3-year rule is separate from the holding period that makes a gain “long-term” in the first place, covered next.

Long-term for an immovable property, including a flat or house, means a holding period of 24 months or more. The Finance Bill, 2024 memorandum states there will “only be two holding periods, 12 months and 24 months” for all assets, and that “for unlisted shares and immovable property it shall remain at 24 months.” If you hold a property for less than 24 months, any gain is short-term, and section 54 or section 82 does not apply to it.

3.17.7 What is the long-term capital gains tax rate, and did indexation change?

The long-term capital gains tax rate for most assets, including property, is 12.5 percent for a transfer on or after 23 July 2024, without indexation. Section 30 of the Finance (No. 2) Act, 2024 substituted section 112(1)(a)(ii) with two rates: “(A) at the rate of twenty per cent. for any transfer which takes place before the 23rd day of July, 2024; and (B) at the rate of twelve and one-half per cent. for any transfer which takes place on or after the 23rd day of July, 2024.” Section 20 of the same Act restricted the indexation benefit in section 48 to transfers “before the 23rd day of July, 2024”. So indexation does not apply to a sale on or after that date.

Parliament added a relief before it passed the Bill. Section 30 of the enacted Finance (No. 2) Act, 2024 adds a proviso to section 112(1)(a) for a resident individual or HUF. It covers land or a building acquired before 23 July 2024. If the tax at 12.5 percent is higher than the tax under the law before the amendment, which is 20 percent with indexation, “such excess shall be ignored”. So you pay the lower of the two amounts. A non-resident does not get this choice. Ask a chartered accountant to compute both amounts for your sale.

Even after this rate change, section 54 and section 82 still let you skip tax on the gain entirely, up to the ₹10 crore cap, if you reinvest within the time limits above. The rate change affects only the part of the gain you do not reinvest. If you fund part of the new flat with a loan, a home loan tax benefit applies to the interest and principal.

3.17.8 What does a seller-buyer’s section 54 claim look like in numbers?

This is an example with simple numbers, not a real case. Recompute your own figures with a chartered accountant. Assume you bought a flat in 2015 for ₹60 lakh and sell it in October 2026 for ₹1.5 crore. Your capital gains, after allowed deductions, come to ₹80 lakh, and you held the flat for more than 24 months, so it is long-term. You sign the agreement for sale with a builder for a new flat priced at ₹1.1 crore, within 2 years of your sale. Because the cost of the new flat, ₹1.1 crore, is more than your ₹80 lakh gain, section 82(1)(ii) reduces the exemption to the full ₹80 lakh. You owe no tax on this gain. If you had instead bought a new flat for only ₹50 lakh, section 82(1)(i) would charge tax on the ₹30 lakh excess of your gain over the new flat’s cost.

Item	Example amount
Sale price of old house (October 2026)	₹1,50,00,000
Long-term capital gains	₹80,00,000
Cost of new flat from builder	₹1,10,00,000
Exemption under section 82	₹80,00,000 (full gain, because new flat cost exceeds the gain)
Tax on this gain	Nil

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3.17.9 What should a seller-buyer check, and what are the red flags?

Check the date of your sale deed first, because it decides whether section 54 of the 1961 Act or section 82 of the 2025 Act applies. Then check the purchase or construction timeline for your new flat against the 1 year before, 2 year after, or 3 year construction limits. If your new flat costs more than ₹10 crore, remember that the amount above ₹10 crore gets no exemption. If you plan to buy two flats, confirm your gain is ₹2 crore or less, and that you have never used this option before. If you cannot complete the purchase before your return due date, open and fund a Capital Gains Accounts Scheme account before that date, not after. Finally, do not sell the new flat within 3 years, or the exemption reverses.

1. Confirm the transfer date of the old house and the matching Act and section.
2. Confirm the old house gave rise to long-term capital gains under the house property head.
3. Track the purchase or construction window for the new flat: 1 year before, 2 years after, or 3 years to construct.
4. Check the new flat’s cost against the ₹10 crore cap.
5. If using the two-house option, confirm the ₹2 crore gain limit and that you have not used it before.
6. If the new flat is not ready before your return due date, deposit the unused gain in a Capital Gains Accounts Scheme account on time.
7. Keep every payment receipt to the builder, and pay from your own account, not an account the scheme does not recognise.
8. Do not sell the new flat within 3 years of buying or building it.

Red flag	Why it matters
Paying the builder from an account the Capital Gains Accounts Scheme does not recognise	The deposit and payment may not count as a valid utilisation of the gain
Missing the Capital Gains Accounts Scheme deposit before the return due date	The unutilised gain can become taxable, and proof of timely deposit is required with the return
Selling the new flat within 3 years of purchase or construction	The exemption reverses, usually creating a larger taxable gain on the resale
Relying only on an allotment letter for the 3-year construction window, without checking with a chartered accountant	Sachi could not confirm from a primary source this session how an allotment is treated for this time limit

This guide explains the law as Sachi read it on 12 October 2026. It is not tax advice. Check your own case with a chartered accountant before you rely on any of these figures or deadlines.

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