How to Save Capital Gains Tax Legally Under Section 54 (Property Sale Guide)

Selling a property can trigger a significant capital gains tax liability.

However, Section 54 of the Income Tax Act allows you to legally save tax — if structured correctly.

Here’s a clear and practical explanation.

------------------------------------------------------------

What is Section 54?

Section 54 provides exemption from Long-Term Capital Gains (LTCG) tax when an individual or HUF sells a residential property and reinvests the gains in another residential property.

------------------------------------------------------------

Who Can Claim Section 54?

• Individuals  
• Hindu Undivided Families (HUF)  

The asset sold must be:
• A long-term residential property (held for more than 24 months)

------------------------------------------------------------

How Much Exemption Can You Claim?

Exemption is allowed to the extent of:

Lower of:
1) Capital Gain amount, OR  
2) Amount invested in new residential property  

------------------------------------------------------------

Time Limit for Investment

To claim exemption:

• Purchase new house within 1 year before sale OR  
• Purchase within 2 years after sale OR  
• Construct within 3 years after sale  

If the amount is not immediately invested before filing the return, it must be deposited in the Capital Gains Account Scheme (CGAS).

------------------------------------------------------------

Example:

Sale Price of Property: ₹1,20,00,000  
Indexed Cost of Acquisition: ₹80,00,000  
Long-Term Capital Gain: ₹40,00,000  

If ₹40,00,000 (or more) is invested in a new residential property within the specified time:

Taxable Capital Gain = ₹0  

If only ₹25,00,000 is invested:

Exemption = ₹25,00,000  
Taxable LTCG = ₹15,00,000  

------------------------------------------------------------

Important Conditions

• The new property must be located in India.  
• You cannot sell the new property within 3 years (otherwise exemption may be reversed).  
• Exemption can be claimed for one residential property (subject to applicable limits).  

------------------------------------------------------------

Common Mistakes to Avoid

• Missing the CGAS deposit deadline  
• Investing in the wrong asset type  
• Miscalculating indexed cost  
• Selling the new property within 3 years  

------------------------------------------------------------

Key Insight

Section 54 is not a loophole.

It is a structured tax relief provision designed to promote reinvestment in residential property.

Proper planning before the sale transaction can legally eliminate capital gains tax liability.

------------------------------------------------------------

If you are planning to sell a property, compute the tax impact before executing the transaction.

Tax planning should happen before the sale — not after.

Comments

Post a Comment

Popular posts from this blog

AIS vs Form 26AS – Practical Difference Explained with Illustration

AIS vs Form 26AS – Practical Difference Explained with Illustration (2026 Guide) Income tax filing के समय सबसे बड़ा confusion क्या होता है? AIS देखना है या 26AS? दोनों अलग हैं या same? Chaliye ek simple illustration se samajhte hain. ------------------------------------- Illustration: Mr. Verma salary earn karte hain ₹12 lakh annually. Unhone ITR file karne se pehle Form 26AS download kiya. Form 26AS me dikh raha hai: • TDS by employer • Bank TDS on FD interest Unhone return file kar diya. Baad me AIS check kiya to pata chala: • ₹3 lakh mutual fund redemption • ₹8 lakh high value credit card payment • ₹5 lakh property stamp duty entry Ye sab 26AS me nahi tha. ------------------------------------- Difference samjhiye: Form 26AS kya dikhata hai? • TDS entries • TCS entries • Advance tax • Self-assessment tax AIS kya dikhata hai? • TDS + TCS • Savings interest • Mutual fund transactions • Share transactions • Property purchase/sale • High value transactions • Foreign remittance • Credit c...
Read more

Salary + HRA + Home Loan – Kaunsa Tax Regime Better? (Full Illustration 2026)

Salary + HRA + Home Loan – Kaunsa Tax Regime Better? (Full Illustration 2026) Income tax ka sabse bada confusion ye hota hai: Salary bhi hai   HRA bhi mil raha hai   Home loan bhi chal raha hai   To Old Regime choose karein ya New Regime? Aaj ek real life example ke through samajhte hain. -------------------------------------------------- Case Study -------------------------------------------------- Mr. Raj Annual Salary: ₹14,00,000 HRA received: ₹3,00,000 Rent paid: ₹18,000 per month Home Loan Interest: ₹2,20,000 Principal Repayment: ₹1,40,000 Other 80C Investment: ₹50,000 City: Non-metro -------------------------------------------------- Step 1: HRA Exemption Calculation -------------------------------------------------- Rent paid yearly = 18,000 × 12 = ₹2,16,000 HRA exemption = Minimum of: 1) Actual HRA received = 3,00,000   2) Rent paid – 10% salary      = 2,16,000 – 1,40,000      = 76,000   3)...
Read more

Home Loan Par Income Tax Deduction 2026 – Kitna Benefit Milta Hai? (With Full Illustration)

Agar aapne home loan liya hai ya lene ka plan bana rahe hain, to ek baat clear samajh lijiye: Home loan sirf ghar nahi deta — Ye aapka Income Tax bhi kam karta hai. Lekin kaun si section me kitni deduction milti hai? Old Regime me kitna benefit? New Regime me kya milta hai? Aaj sab simple example ke saath samajhte hain. ------------------------------------------ 1️⃣ Home Loan Par Kaun-Kaun Si Deduction Milti Hai? ------------------------------------------ Section 80C Principal repayment par maximum ₹1.5 lakh tak deduction. Section 24(b) Interest payment par maximum ₹2 lakh tak deduction (self-occupied property). Section 80EE / 80EEA First time home buyers ke liye extra deduction (conditions apply). ------------------------------------------ 2️⃣ Practical Illustration (Real Calculation) ------------------------------------------ Case: Annual Salary = ₹12,00,000 Home Loan Interest = ₹2,20,000 Principal Repayment = ₹1,50,000 Other 80C Investment = ₹50,000 ---------------------------------...
Read more