1. Section 54F – Investment in Residential Property
If a seller reinvests the net sale proceeds from a long-term capital asset (such as industrial or commercial land) into a residential house property, they can claim exemption under Section 54F of the Income Tax Act. Key conditions include:
- The new residential property must be purchased within 1 year before or 2 years after, or constructed within 3 years from the date of sale
- The seller should not own more than one other residential house on the date of sale
- The entire sale consideration (not just the gain) must be reinvested to claim full exemption
Partial investment results in proportionate exemption based on the reinvested amount.
2. Section 54EC – Investment in Capital Gains Bonds
Long-term capital gains from the sale of land can also be exempted under Section 54EC by investing in specified bonds within 6 months of the sale date. Features include:
- Bonds must be issued by NHAI (National Highways Authority of India) or REC (Rural Electrification Corporation)
- Maximum investment limit is ₹50 lakh per financial year
- The lock-in period for these bonds is 5 years, and premature transfer is not allowed
This option is widely used by sellers who prefer fixed-income and low-risk reinvestment strategies.
3. Capital Gains Account Scheme (CGAS)
If a seller is unable to immediately reinvest in a qualifying asset before the income tax return filing deadline, they may:
- Deposit the unutilized capital gains in a Capital Gains Account Scheme (CGAS) with a nationalized bank
- Use the funds later to purchase or construct the residential property within the permissible period
- Report the deposit details in the income tax return to preserve eligibility for exemption
Failure to utilize the deposited amount within the specified timeline will result in the amount being taxed as capital gains in the year of expiry.
4. Section 54B – Agricultural Land Sale (If Applicable)
If the asset sold is classified as agricultural land used for farming for at least 2 years prior to sale, and the capital gains are reinvested in other agricultural land, exemption can be claimed under Section 54B. Conditions include:
- The new land must be purchased within 2 years from the date of transfer
- The new land must be used for agricultural purposes
- The exemption is applicable only to individuals or Hindu Undivided Families (HUFs)
This is specific to agricultural land and not applicable to industrial or commercial land.
5. Exemptions Under Section 115F (for NRIs)
Non-Resident Indians (NRIs) who reinvest capital gains in specified Indian assets, such as:
- Shares, debentures, deposits, or bonds of Indian companies
- Within 6 months of the transfer
May claim exemption under Section 115F, provided they hold the reinvested asset for at least 3 years.
This provision is only applicable to NRIs and is tied to foreign income repatriation policies under FEMA.
6. HUF Reinvestment and Trust-Level Exemptions
In the case of Hindu Undivided Families (HUFs) or registered trusts:
- Similar exemptions under Sections 54F and 54EC are available
- The new residential asset or bonds must be registered in the name of the HUF or trust, not individuals
- Exemptions must be explicitly disclosed in their respective tax filings
These allow for structured tax planning and asset consolidation through legal entities.
