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Quick Snapshot
When you sell a capital asset, the profit is called capital gain and you pay income tax on it. But the law has always recognised a practical reality: people often sell one asset only to invest in another productive one. Taxing them fully in such cases would discourage reinvestment and economic activity.
Think of it like a relay race. You sold an asset. The gain is in your hand. The government says: reinvest it quickly in the right place, and we will not tax it. Sit on the money, invest too late, or invest in the wrong asset, and the tax arrives. The baton must keep moving.
The Income Tax Act 2025 carries forward all seven capital gains exemption provisions from the 1961 Act. Only the section numbers have changed. The conditions, timelines, caps, and withdrawal rules are identical. The mapping is straightforward:
Section wise mapping
| Old Section (1961 Act) | New Section (2025 Act) | What It Covers |
| Section 54 | Section 82 | Sell a residential house, buy a residential house |
| Section 54B | Section 83 | Sell agricultural land, buy agricultural land |
| Section 54D | Section 84 | Compulsory acquisition of industrial land or building |
| Section 54EC | Section 85 | Any person sells land or building, invests in specified bonds |
| Section 54F | Section 86 | Sell any long-term asset (not a house), buy a residential house |
| Section 54G | Section 87 | Shift industrial unit from urban area to non-urban area |
| Section 54GA | Section 88 | Shift industrial unit from urban area to a Special Economic Zone |
| Section 54H (extension) | Section 89 | Extension of time when original asset is compulsorily acquired |
One rule connects all these sections. Even if the actual reinvestment happens after the sale, simply depositing the unused capital gain in the Capital Gain Account Scheme (CGAS) before filing the return protects the exemption.
At a Glance: All Seven Exemptions
| Section | Who | What Was Sold | Reinvest In | By When | Exemption |
| 82 (old 54) | Individual or HUF | Residential house (LTCG) | 1 house in India (2 houses if gain is within Rs. 2 crore, once in lifetime) | Buy: 1 yr before or 2 yrs after. Construct: 3 yrs after | Lower of: CG or investment, max Rs. 10 crore |
| 83 (old 54B) | Individual or HUF | Agricultural land (STCG or LTCG), used for agriculture for 2 yrs | Agricultural land (to be used for agriculture) | Within 2 yrs after transfer | Lower of: CG or investment |
| 84 (old 54D) | Any person | Industrial land or building compulsorily acquired (STCG or LTCG), used in business for 2 yrs | Land, building, or rights therein for re-establishing or new industrial unit | Within 3 yrs after transfer | Lower of: CG or investment |
| 85 (old 54EC) | Any person | Land or building (LTCG only) | NHAI or RECL bonds (5-yr lock-in) | Within 6 months after transfer | Lower of: CG or investment, max Rs. 50 lakh |
| 86 (old 54F) | Individual or HUF | Any long-term asset except residential house (LTCG only) | 1 residential house in India | Buy: 1 yr before or 2 yrs after. Construct: 3 yrs after | Proportionate: (Investment / Net consideration) x CG, new asset capped at Rs. 10 crore |
| 87 (old 54G) | Any person | Machinery, plant, building, land of urban industrial unit (STCG or LTCG) | New P&M, building, land in non-urban area; shifting expenses | 1 yr before or 3 yrs after transfer | Lower of: CG or cost and expenses of shift |
| 88 (old 54GA) | Any person | Machinery, plant, building, land of urban industrial unit (STCG or LTCG) | New P&M, building, land in an SEZ; shifting expenses | 1 yr before or 3 yrs after transfer | Lower of: CG or cost and expenses of shift |
Under Income Tax Act 1961: Section 54 of the Income Tax Act 1961
This section applies when an individual or HUF sells a residential house property and reinvests the capital gain in another residential house in India. The original asset must be a long-term capital asset.
Key Conditions:
- The new house must be purchased within 1 year before or 2 years after the date of transfer, or constructed within 3 years after the date of transfer.
- Normally only one new house qualifies. However, under Section 82(5), if the capital gain does not exceed Rs. 2 crore, the assessee may purchase or construct two residential houses. This option can be exercised only once in a lifetime per Section 82(6).
- Under Section 82(7): if the new asset is transferred within 3 years of purchase or construction, the exempted capital gain is charged as long-term capital gains in the year of such transfer.
The Rs. 10 Crore Cap: Sections 82(7) and 82(8)
Section 82(7): if the cost of the new asset exceeds Rs. 10 crore, the amount exceeding Rs. 10 crore is not taken into account for computing the exemption.
Section 82(8): if the capital gain on the original asset exceeds Rs. 10 crore, the amount exceeding Rs. 10 crore is not taken into account for depositing in CGAS.
In effect, the maximum exemption under Section 82 is capped at Rs. 10 crore regardless of the actual investment or gain.
Exemption Amount
If the capital gain exceeds the cost of the new asset, the excess is charged to tax. If the capital gain is equal to or less than the cost, no capital gain is charged to tax.
Example: Ramesh sells his Delhi flat for a capital gain of Rs. 80 lakh. He buys a new flat in Noida for Rs. 90 lakh within 18 months. Since his investment (Rs. 90 lakh) exceeds the capital gain (Rs. 80 lakh), the entire Rs. 80 lakh is exempt.
Example: Sunita sells her house for a capital gain of Rs. 1.5 crore. Her gain is within Rs. 2 crore, so she exercises the two-house option under Section 82(5). She buys two flats, one for Rs. 60 lakh and one for Rs. 80 lakh, totalling Rs. 1.4 crore. Exempt = Rs. 1.4 crore. Taxable LTCG = Rs. 10 lakh.
Under Income Tax Act 1961: Section 54B of the Income Tax Act 1961
This section applies when an individual or HUF sells agricultural land that was used for agricultural purposes by the assessee, their parent, or the HUF for 2 years immediately preceding the date of transfer. Both short-term and long-term capital gains are covered.
Key Conditions
- The original land must be an urban agricultural land. Rural agricultural land is not a capital asset and its sale does not give rise to capital gains in the first place.
- The assessee must purchase new agricultural land within 2 years after the date of transfer.
- The new land must also be used for agricultural purposes.
- If the new asset is sold within 3 years, the exempt amount is deducted from the cost of acquisition of the new asset.
Exemption Amount
Lower of: capital gain or amount invested in the new agricultural land.
Example: Meena sells her urban agricultural land for a capital gain of Rs. 40 lakh. She buys new agricultural land for Rs. 35 lakh within 18 months. Exempt = Rs. 35 lakh. Taxable capital gain = Rs. 5 lakh.
Under Income Tax Act 1961: Section 54D of the Income Tax Act 1961
Section 84 applies when any person (not just individuals) has land or a building compulsorily acquired under any law, where that land or building formed part of an industrial undertaking and was used in the business of that undertaking for 2 years before the transfer.
Key Conditions
- The transfer must be by way of compulsory acquisition under any law.
- The asset must have been used for the business of the industrial undertaking in the 2 years immediately preceding the date of transfer.
- The assessee must purchase or construct new land, building, or rights in land or building for shifting or re-establishing the industrial undertaking, or for setting up another industrial undertaking, within 3 years after the transfer.
- If the new asset is sold within 3 years, the exempt amount is deducted from cost of acquisition.
Exemption Amount
Lower of: capital gain or amount invested in the new asset.
Example: ABC Ltd’s factory building is compulsorily acquired. The capital gain is Rs. 60 lakh. The company spends Rs. 75 lakh to construct a new factory building within 3 years. Since Rs. 75 lakh exceeds Rs. 60 lakh, the entire capital gain of Rs. 60 lakh is exempt.
Under Income Tax Act 1961: Section 54EC of the Income Tax Act 1961
Section 85 allows any person to invest long-term capital gains from the sale of land or building in specified government bonds and claim exemption. This is the only provision that does not require buying another property. It applies exclusively to LTCG from land or building.
The Bonds
Section 85(6) defines long-term specified asset as any bond redeemable after 5 years, issued on or after 1 April 2018, by:
- National Highways Authority of India (NHAI) constituted under Section 3 of the NHAI Act, 1988, or
- Rural Electrification Corporation Limited (RECL) registered under the Companies Act, 2013, or
- Any other bond notified by the Central Government.
Key Conditions
- Investment must be made within 6 months from the date of transfer of the original asset.
- Investment in a single Tax Year is capped at Rs. 50 lakh under Section 85(2)(a).
- Total investment across the Tax Year of transfer and the subsequent Tax Year is also capped at Rs. 50 lakh under Section 85(2)(b). Both limits apply simultaneously.
- Section 85(5): no deduction under Section 123 (old Section 80C) is available on this investment.
- CGAS does not apply to Section 85. The investment simply must happen within 6 months.
Withdrawal Rule
Section 85(3): if the bonds are transferred or converted into money within 5 years of acquisition, the capital gains that were not charged earlier are deemed to be long-term capital gains in the Tax Year of such transfer or conversion.
Section 85(4): any loan or advance taken against the security of these bonds is also treated as a conversion into money on the date of the loan.
Example: Ravi sells a plot for a capital gain of Rs. 45 lakh. He invests Rs. 45 lakh in NHAI bonds within 6 months. Entire Rs. 45 lakh is exempt. If Ravi takes a loan against these bonds 2 years later, the Rs. 45 lakh becomes taxable LTCG in that year.
Example: Anita sells two plots in the same Tax Year with a combined LTCG of Rs. 80 lakh. She wants to invest in Section 85 bonds. She can invest only Rs. 50 lakh (the cap per year). Rs. 30 lakh is taxable. If she had invested Rs. 30 lakh in the previous Tax Year’s bonds already, those count toward the Rs. 50 lakh combined cap.
Under Income Tax Act 1961: Section 54F of the Income Tax Act 1961
Section 86 is broader than Section 82. While Section 82 applies only when a house is sold, Section 86 applies when an individual or HUF sells any long-term capital asset other than a residential house and reinvests the net sale consideration in a new residential house.
The exemption here is proportionate. If you invest only a part of the net sale consideration, you get exemption only in proportion to that part.
The Proportionate Exemption Formula
If net consideration is more than cost of new asset: Exempt capital gain = (Cost of new asset / Net consideration) x Capital gain.
If net consideration is equal to or less than cost of new asset: Entire capital gain is exempt.
Net consideration (Section 86(10)) means full value of consideration received minus expenditure incurred wholly and exclusively in connection with the transfer.
Section 86(8): if cost of new asset exceeds Rs. 10 crore, the amount above Rs. 10 crore is not counted for computing the exemption.
Section 86(9): if net consideration on the original asset exceeds Rs. 10 crore, the amount above Rs. 10 crore is not counted for CGAS deposit purposes.
Restriction on Owning Other Houses
Section 86(5) states the exemption does not apply if:
- The assessee owns more than one residential house other than the new asset on the date of transfer of the original asset.
- The assessee purchases any residential house other than the new asset within 1 year of transfer, where income from such house is chargeable under house property.
- The assessee constructs any residential house other than the new asset within 3 years of transfer, where income from such house is chargeable under house property.
Withdrawal Rule
Section 86(6): if the assessee buys another house within 2 years or constructs one within 3 years (other than the new asset), the earlier exempted capital gain becomes taxable LTCG in that year.
Section 86(7): if the new asset itself is sold within 3 years of purchase or construction, the exempted capital gain becomes taxable LTCG in the year of such sale.
Example: Priya sells gold jewellery. Net sale consideration = Rs. 50 lakh. LTCG = Rs. 20 lakh. She buys a flat for Rs. 40 lakh. Exempt = (40/50) x 20 = Rs. 16 lakh. Taxable LTCG = Rs. 4 lakh.
Example: Arun sells shares with LTCG of Rs. 30 lakh. Net consideration = Rs. 80 lakh. He invests the full Rs. 80 lakh in a house. Since net consideration is less than or equal to cost of new asset (Rs. 80 lakh invested out of Rs. 80 lakh), the entire Rs. 30 lakh LTCG is exempt.
Under Income Tax Act 1961: Section 54G of the Income Tax Act 1961
Section 87 applies when any person shifts an industrial undertaking from an urban area to a non-urban area. The sale of machinery, plant, building, land, or rights in building or land of the urban industrial unit in connection with this shift triggers capital gains. Section 87 exempts those gains.
Urban Area Definition: Section 87(5)
Urban area means any area within the limits of a municipal corporation or municipality, declared to be an urban area by the Central Government for this section, having regard to population, concentration of industries, and need for proper planning.
Qualifying Reinvestments
Within 1 year before or 3 years after the date of transfer, the assessee must:
- Purchase new machinery or plant for the business in the new non-urban area.
- Acquire building or land or construct building for the business in the new area.
- Shift the original asset and transfer the establishment of the undertaking to the new area.
- Incur expenses on other purposes specified in a scheme notified by the Central Government for this section.
Exemption Amount
If the cost and expenses incurred on the above activities are less than the capital gain, the difference is taxable. If equal to or more, no capital gain is charged to tax.
Withdrawal Rule
If the new asset is transferred within 3 years, the cost for computing subsequent capital gains is taken as nil (if fully exempt) or reduced by the capital gain (if partially exempt).
Example: A manufacturer shifts its urban factory to a rural industrial area. It earns LTCG of Rs. 1 crore on the sale of its old factory land and building. It spends Rs. 1.2 crore on new land, new machinery, and shifting expenses within 3 years. Since Rs. 1.2 crore exceeds Rs. 1 crore, the entire capital gain is exempt.
Under Income Tax Act 1961: Section 54GA of the Income Tax Act 1961
Section 88 is identical to Section 87 in structure, with one difference: the destination is a Special Economic Zone (SEZ) instead of any non-urban area. The SEZ can be in an urban or non-urban area.
| Aspect | Section 87 (old 54G) | Section 88 (old 54GA) |
| What is sold | Machinery, plant, building, land of urban industrial unit | Same |
| Destination | Any non-urban area | Any Special Economic Zone (urban or non-urban) |
| Qualifying reinvestments | New P&M, building, land in new area; shifting expenses | Same, but in the SEZ |
| Time limit | 1 year before or 3 years after transfer | Same |
| Exemption | Lower of: CG or cost and expenses of shift | Same |
| Withdrawal | Sell new asset within 3 years: cost adjusted | Same |
Section 88(5) states that urban area for this section has the same meaning as in Section 87.
Example: A company shifts its manufacturing unit from an urban area to an SEZ. It earns LTCG of Rs. 80 lakh on old factory assets. It spends Rs. 75 lakh on new SEZ assets and shifting. Exempt = Rs. 75 lakh. Taxable = Rs. 5 lakh.
Under Income Tax Act 1961: Section 54H of the Income Tax Act 1961
Section 89 provides a special extension rule. Where the original asset is transferred by way of compulsory acquisition under any law, and the compensation is not received by the assessee on the date of transfer, the time limits available under Sections 82, 83, 84, 85, and 86 for acquiring the new asset or depositing in CGAS are reckoned from the date of actual receipt of compensation, not from the date of transfer.
This is critical for compulsory acquisition cases where the government takes years to pay compensation. Without this extension, the assessee would lose the exemption simply because they had not received the money when the clock started ticking.
Example: The government acquires Ramesh’s plot in January 2024 (date of transfer). Compensation is actually received in March 2026. Section 89 applies. The 6-month window for Section 85 (bond investment) starts from March 2026, not January 2024. Ramesh has until September 2026 to invest in NHAI bonds.
The Capital Gain Account Scheme (CGAS) applies to Sections 82, 83, 84, 86, 87, and 88. It does not apply to Section 85 (bonds must simply be purchased within 6 months).
The mechanism is the same across all covered sections:
- If the capital gain has not been fully reinvested in the new asset before filing the income tax return under Section 263, the unused amount must be deposited in a CGAS account with a designated bank.
- The deposit must be made before filing the return, not later than the due date for filing under Section 263(1).
- Proof of deposit must be submitted along with the return.
- The deposited amount, along with amounts already utilised, is deemed to be the cost of the new asset.
- If the deposited amount is not used within the time limit specified in the relevant section, the unused portion is charged to tax as capital gain in the Tax Year in which the time limit expires.
- The assessee is entitled to withdraw the unused amount from CGAS as per the scheme.
Example: Arun sells his house in April 2026 with a capital gain of Rs. 90 lakh. He cannot find a suitable property to buy before filing his ITR in July 2026. He deposits Rs. 90 lakh in a CGAS account before filing. The deposit counts as the cost of the new asset. He has until April 2028 (2 years from transfer) to buy the new house. If he does not buy by then, Rs. 90 lakh becomes taxable capital gain in Tax Year 2028-29.
Points Common Across All Sections
- An assessee can claim exemption under more than one section for the same transfer, provided all conditions of each section are independently satisfied.
- Under Sections 82 and 86, two adjacent flats purchased together are treated as one residential house for exemption purposes.
- Under Section 82, construction cost includes both land and building costs.
- Investment in the name of another person also qualifies under Sections 82, 83, 86, 87, and 88.
- Section 85 (bonds) is the only provision with no CGAS mechanism. The investment must happen within 6 months.
- Capital gains tax rates applicable on the original transfer determine the rate at which the unexempt portion is taxed. For LTCG on listed equity, the Section 146 rate of 12.5% applies. For LTCG on property, the Section 147 rate of 12.5% applies (w.e.f. 23 July 2024, without indexation).
Practical Compliance Checklist
- If you sold a residential house: claim exemption under Section 82. If your gain is within Rs. 2 crore and you want two houses, exercise the option in your ITR. The two-house option is once in a lifetime.
- If you sold agricultural land: ensure the land was used for agriculture for 2 years before sale. Buy new agricultural land within 2 years and ensure it is also used for agriculture.
- If you sold land or building and want to invest in Section 85 bonds: invest within 6 months of transfer. Maximum Rs. 50 lakh across two consecutive years. Do not pledge the bonds for any loan.
- If you sold any long-term asset (gold, shares, etc.) and want Section 86: check that you do not own more than one other house at the time of sale. Compute the proportionate exemption based on net consideration, not just the capital gain amount.
- If you have not completed reinvestment by your ITR filing date: deposit the unused gain in a CGAS account before filing. Attach proof of deposit with the return.
- If your capital gain was from compulsory acquisition and compensation was delayed: apply Section 89. Your time limits run from the date of actual receipt of compensation, not the date of acquisition.
- All exemption amounts and CGAS deposits are limited to Rs. 10 crore under Sections 82 and 86. Capital gains above Rs. 10 crore are always taxable regardless of reinvestment.
The Income Tax Act 2025 preserves all seven capital gains exemption provisions from the 1961 Act under new section numbers 82 to 89. The substance, conditions, timelines, caps, and withdrawal rules are unchanged. The Rs. 10 crore cap under Sections 82 and 86 was introduced by the Finance Act 2023 under the 1961 Act and continues in the 2025 Act. Whether you are selling a house, farm land, industrial assets, or gold, the principle is the same: reinvest in the right asset, within the right time, and the tax liability reduces or disappears entirely.
