Capital Gains Exemptions Revision Note

01 Overview — What Are Capital Gains Exemptions?

Capital Gains Exemption = When a capital asset is transferred and the gain is reinvested in a specified new asset within the prescribed time, the gain is exempt from tax to the extent of the reinvestment.
Key principle: These are conditional exemptions — violation of lock-in or conditions leads to withdrawal of exemption in the year of violation.

Sections covered in this chapter:

Sec 54 Sec 54B Sec 54D Sec 54EC Sec 54F Sec 54G Sec 54GA Sec 54GB

02 Master Quick-Reference Table

Section	Eligible Assessee	Original Asset	New Investment	Exemption Basis
54	Individual / HUF	LTC Residential House	1 Residential House in India	Lower of LTCG or cost of new house ₹10 Cr cap
54B	Individual / HUF	Agricultural Land (used 2 yrs)	Agricultural Land in India	Lower of CG or cost of new land
54D	Any Assessee	Industrial Land/Building (compulsory acquisition)	Land/Building for Industrial Undertaking	Lower of CG or cost of new asset
54EC	Any Assessee	LTC Land / Building / Both	Specified Bonds (within 6 months)	Amount invested — max ₹50 Lakh
54F	Individual / HUF	Any LTC Asset (other than residential house)	1 Residential House in India	Full / Proportionate Net Cons. ₹10 Cr cap
54G	Any Assessee	Urban Industrial Undertaking	Specified shifting/reinvestment assets	Lower of CG or amount utilised
54GA	Any Assessee	Urban Industrial Undertaking	Specified assets shifted to SEZ	Lower of CG or amount utilised
54GB	Individual / HUF	LTC Residential Property (house or plot)	Equity Shares of eligible company → new asset	Full / Proportionate (net consideration basis)

03 Section 54 — House Sold, House Bought

Eligible Assessee

Individual / HUF

Original Asset

Long-term capital asset — Residential House Property

New Asset

One Residential House in India

Nature of Gain

LTCG only

Time Limit — Purchase

1 year before or 2 years after transfer

Time Limit — Construction

3 years after date of transfer

Exemption = Lower of

(a) Long-Term Capital Gain (LTCG)
(b) Cost of New Residential House
► NOT a proportionate exemption — no net-consideration formula applies here.

⚠

Finance Act 2023 Amendment — AY 2024-25 onwards

Cost of new asset in excess of ₹10 crore is ignored for computing the exemption. Practical cap on exemption = ₹10 crore.

✓

Special Once-in-Lifetime Relief

If LTCG does not exceed ₹2 crore, the assessee may — once in lifetime — invest in two residential houses in India instead of one.

04 Section 54B — Agricultural Land

Eligible Assessee

Individual / HUF

Original Asset

Agricultural Land used for agriculture by individual / parent / HUF for 2 years immediately preceding transfer

New Asset

Agricultural Land in India

Nature of Gain

STCG + LTCG both covered

Time Limit — Purchase

2 years from date of transfer

Lock-in Period

3 years — if new land transferred within 3 years, earlier exemption is withdrawn by adjusting cost of acquisition

Exemption = Lower of

(a) Capital Gain (STCG or LTCG)
(b) Cost of New Agricultural Land

ℹ

Key Point

Section 54B is unique — it covers both STCG and LTCG, and is available to HUF in addition to individuals. The land must have been used for agricultural purposes by the individual, their parent, or the HUF.

05 Section 54D — Compulsory Acquisition of Industrial Land / Building

Eligible Assessee

Any Assessee

Original Asset

Land or building forming part of an industrial undertaking, used for business in the 2 years immediately preceding transfer

New Asset

Land or building for shifting / re-establishing / reconstructing the industrial undertaking

Mandatory Condition

Transfer must be by Compulsory Acquisition

Time Limit

Within 3 years after the date of transfer

Nature of Gain

STCG or LTCG (both covered)

Exemption = Lower of

(a) Capital Gain
(b) Cost of New Asset (land / building)

⚠

Exam Tip

Section 54D is triggered only by compulsory acquisition — voluntary sale of an industrial property does not qualify. Remember: 54D = "compulsory acquisition of industrial land/building."

06 Section 54EC — Investment in Specified Bonds

Eligible Assessee

Any Assessee

Original Asset

Long-term capital asset being land or building or both

New Investment

Specified Bonds u/s 54EC (NHAI, REC, PFC, IRFC or any other notified)

Nature of Gain

LTCG only

Time Limit for Investment

Within 6 months from date of transfer

Lock-in Period

5 years (was 3 years prior to FY 2018-19)

Exemption

Amount invested in Specified Bonds — subject to a ceiling of ₹50 lakh
► The ₹50 lakh ceiling is across the current financial year + succeeding financial year combined.

⚠

Maximum Investment Cap

₹50 lakh — this limit applies across the current financial year and the next financial year combined. Investing more than ₹50 lakh does not yield additional exemption.

ℹ

Exam Language

Always refer to the bonds as "Specified Bonds under Section 54EC" — no need to exhaustively list issuers. The original asset must specifically be land or building or both (not any other long-term capital asset).

07 Section 54F — Any LTC Asset → Residential House (Proportionate)

Eligible Assessee

Individual / HUF

Original Asset

Any long-term capital asset other than a residential house property

New Asset

One Residential House in India

Nature of Gain

LTCG only

Time Limit — Purchase

1 year before or 2 years after transfer

Time Limit — Construction

3 years after date of transfer

Exemption Formula — Proportionate

Case A — Full Exemption

If Cost of New House ≥ Net Consideration → Full LTCG is exempt

Case B — Proportionate Exemption

If Cost of New House < Net Consideration:
Exemption = LTCG × (Cost of New House ÷ Net Consideration)

⚠

Finance Act 2023 Amendment — AY 2024-25 onwards

Net Consideration exceeding ₹10 crore is ignored for the purpose of computing this exemption.

⚠

Ownership Condition — Critical

Exemption is not available if the assessee owns more than one residential house (other than the new house being purchased) on the date of transfer. Additional restrictions apply on subsequent purchases/constructions within specified periods.

ℹ

Key Distinction from Section 54

Section 54F is the proportionate exemption section. Section 54 is NOT proportionate. Section 54F applies to any long-term capital asset sold; Section 54 applies only when a residential house is sold.

08 Section 54G — Shifting from Urban Area to Non-Urban Area

Eligible Assessee

Any Assessee

Situation

Shifting of industrial undertaking from Urban Area to any area other than urban area

Eligible Reinvestment

New plant/machinery, acquisition/construction of building/land, shifting expenses

Nature of Gain

STCG or LTCG (both covered)

Time Limit

1 year before or 3 years after the date of transfer

Exemption

Lower of Capital Gain or Amount Utilised for specified purposes

Exemption = Lower of

(a) Capital Gain
(b) Amount utilised for new plant/machinery, building/land, and shifting expenses

09 Section 54GA — Shifting from Urban Area to SEZ

Eligible Assessee

Any Assessee

Situation

Shifting of industrial undertaking from Urban Area to a Special Economic Zone (SEZ)

Eligible Use

New plant/machinery, acquisition/construction of building/land, shifting expenses

Nature of Gain

STCG or LTCG (both covered)

Time Limit

1 year before or 3 years after the date of transfer

Exemption

Lower of Capital Gain or Amount invested/utilised for specified purposes

ℹ

54G vs 54GA

Section 54G → shifting to any non-urban area.
Section 54GA → shifting specifically to a Special Economic Zone (SEZ).
All other conditions (assessee, eligible use, time limit, exemption formula) are identical.

10 Section 54GB — Residential Property → Eligible Startup

Eligible Assessee

Individual / HUF

Original Asset

Long-term capital asset being a Residential Property — specifically a house or a plot of land

Investment Route

Subscribe to equity shares of an Eligible Company (qualifying startup conditions apply)

Nature of Gain

LTCG only

1

Assessee transfers a long-term residential property (house or plot of land) and earns LTCG.

2

Before the due date u/s 139(1), utilise the net consideration for subscription in equity shares of an eligible company.

3

The eligible company must then use the subscribed amount within 1 year from the date of subscription for purchase of a new asset (plant & machinery, etc.).

Exemption Formula

Case A — Full Exemption

If Net Consideration ≤ Cost of New Asset → Full LTCG is exempt

Case B — Proportionate Exemption

If Net Consideration > Cost of New Asset:
Exemption = LTCG × (Cost of New Asset ÷ Net Consideration)

⚠

Important — Original Asset Clarification

The original asset under Section 54GB explicitly includes both a residential house and a plot of land. This is different from Section 54 / 54F which do not mention a plot separately.

11 Must-Remember Rules & Common Exam Traps

✓ Section 54 = NOT proportionate. Exemption = Lower of LTCG or cost of new house. No net consideration formula.

→ Section 54F = PROPORTIONATE. Exemption = LTCG × (Cost of new house ÷ Net consideration). Applicable when any LTC asset other than residential house is sold.

→ Section 54B covers BOTH STCG and LTCG — the only common section (apart from 54D, 54G, 54GA) that does so. Available to HUF as well as individuals.

→ Section 54EC: only LTC land or building qualifies as original asset. Maximum exemption = ₹50 lakh. Lock-in = 5 years. Investment within 6 months.

⚠ Finance Act 2023: For Sec 54, cost of new house capped at ₹10 Cr. For Sec 54F, net consideration capped at ₹10 Cr. Excess is ignored for computing exemption.

⚠ Section 54F is NOT available if the assessee owns more than one residential house (other than the new house) on the date of transfer.

✓ Section 54 "once-in-lifetime" relief: If LTCG ≤ ₹2 crore, assessee may invest in TWO residential houses instead of one.

→ 54G = shift to non-urban area. 54GA = shift to SEZ. Both: same assessee (any), same eligible use, same time limit (1 yr before / 3 yrs after).

→ Section 54GB requires 2-stage reinvestment: Assessee → equity shares of eligible company → company buys new asset within 1 year. Original asset includes a plot of land.

Deductions Under Capital Gains