If you sell shares, agricultural plots, or houses at a profit, a hefty tax bill comes attached with it. The good news is that the Indian Income Tax doesn't tax every rupee of profit made on the sale; if the gains are reinvested (or, in some cases, the entire sale proceeds) into specific approved assets within a set timeframe, the investor can legally reduce or completely wipe out their capital gains tax liability.
The exemptions span several distinct sections of the Income Tax Act, each designed for a particular type of asset and reinvestment. This blog walks through each provision under the current Income Tax Act, 1961 framework (as amended by the Finance Act, 2026).
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Section |
What it covers (Capital gains arising from) |
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54 |
Selling a residential house and buying another one |
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54B |
Selling agricultural land and buying new agricultural land |
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54D |
Acquisition of land and building due to an industrial undertaking, and the investor sets up another industrial asset |
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54EC |
Selling land/building and parking gains in specified “Capital Gain Bonds” |
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54EE |
Selling any long-term asset and investing in units of a government-notified long-term specified fund that finances eligible start-ups. |
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54F |
Selling any long-term capital asset, like stocks/mutual funds (other than a house) and buying a residential house |
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54G |
Shifting an industrial unit from a city to a non-urban area |
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54GA |
Shifting an industrial unit from a city to an SEZ |
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54GB |
Selling residential property and investing in a company (certified as a start-up by the Inter-Ministerial Board of Certification), which uses this investment to buy a new plant and machinery |
If you sell a residential house property (or “land appurtenant,” i.e., the land attached to it) after holding it for over 24 months and reinvest the proceeds in another residential house in India, you can claim the Section 54 exemption. For instance, you can sell a ₹1.2 crore house and reinvest in a ₹1 crore house.
It's available only to individuals and Hindu Undivided Families (HUFs), not companies or firms.
Section 54B provides tax exemption on the sale of agricultural land that has genuinely been used for farming (by the investor, their parents, or an HUF) for at least two years before the sale. If the investor uses the proceeds to buy new agricultural land within two years of the sale, they can claim exemption on both short-term and long-term gains.
When land or a building forming part of an industrial undertaking is compulsorily acquired by the government or another authority, Section 54D lets any assessee, not just individuals, claim exemption on the resulting gain, provided the taxpayer reinvests the compensation in new land or a building (or certain rights therein) for shifting, re-establishing, or setting up another industrial undertaking.
To save tax on capital gains from selling land, a building, or both, the investor can invest in the specified Section 54EC bonds. REC Limited (REC), Power Finance Corporation Limited (PFC), Indian Railway Finance Corporation Limited (IRFC), and Housing and Urban Development Corporation Limited (HUDCO) issue these bonds, which offer an identical interest rate of 5.25% per annum.
To qualify for the exemption, the investment must be made within 6 months of the date of transfer.
Section 54EE offers a similar bond-style exemption, but the investment goes toward government-designated funds for startups, rather than infrastructure bonds.
The cap is ₹50 lakh (across the year of transfer and the following year combined), and the investment window is six months.
For the Section 54EE exemption, qualifying units had to be issued before 1 April 2019, and no fund for fresh 54EE investment has been notified to date. Therefore, it is not a practical exemption route for new investments as of 5 October 2026.
When an individual sells shares, mutual funds, or other long-term capital assets (other than residential house property) and uses the proceeds to buy a residential house, the capital gains are exempt under section 54F.
It is based on the entire net sale consideration, not just the capital gain. This benefit is restricted to individuals and HUFs, and you lose eligibility if you already own more than one other house on the date of the original sale (with a narrow exception for a house bought within the preceding year).
If the investor sells plant, machinery, land, or a building used by an industrial undertaking situated in an urban area and uses the proceeds to reestablish that undertaking in a non-urban area, they can claim exemption on both short- and long-term gains.
The reinvestment window is one year before to three years after the shift and covers new plant and machinery, land or buildings, relocation costs, and other specified expenses.
Section 54GA is essentially the SEZ version of Section 54G. Instead of moving to a non-urban area, the investor relocates their industrial undertaking to a Special Economic Zone (SEZ). The rules, timelines, and exemption calculations closely mirror Section 54 G.
If an individual or HUF sells a residential house or plot and invests the proceeds in equity shares of an eligible company, and that company then uses the money to buy new plant and machinery, the resulting gain can be exempted.
This exemption is available only to individuals and HUFs.
Capital gains exemptions can help reduce your tax liability when you sell an asset and reinvest in an eligible property, bond or other specified investment. Each exemption has its own set of eligibility requirements, investment caps and time limits.
You will need to identify the relevant section, complete the reinvestment within the prescribed time, and use the Capital Gains Account Scheme (CGAS) where appropriate to ensure you don't lose the tax benefit.
Always check the latest tax rules and seek advice from a qualified tax advisor before making a decision.
Disclaimer: The article is general information, not tax or investment advice, and recommends readers consult a qualified tax adviser for their situation