Section 54 and 54F exemption after FA 2024: the ₹10Cr cap and what it means for HNI sellers
The Section 54 and 54F exemption on reinvesting long-term capital gains into a residential house is capped at ₹10 crore per assessee, in force since AY 2024-25 (Finance Act 2023). For FY 2025-26 HNI sellers, the cap creates a taxable residue most reinvestment plans ignore.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
The Section 54 / 54F exemption on reinvesting long-term capital gains into a residential house is capped at ₹10 crore per assessee — a lifetime limit, in force since AY 2024-25 under the Finance Act 2023. For FY 2025-26 (AY 2026-27), any seller whose total reinvestment-linked exemption crosses ₹10 crore faces tax on the excess, even where the reinvestment itself is within the window. The cap applies to the exemption claimed, not to the sale proceeds, and it catches HNIs who sell high-value property and roll the full gain into a new flat believing the old "unlimited" rule still exists.
Staleness alert: Many property and HNI tax pages still describe Section 54 as "unlimited exemption on reinvesting capital gains into a house." That was true only for transfers before 1 April 2023. For every transfer from AY 2024-25 onward, the exemption is capped at ₹10 crore aggregate per assessee — and the old 20%-with-indexation computation that used to cushion these gains was itself replaced by the 12.5% / 20% choice from 23 July 2024.
The cap, provision by provision
The ₹10 crore cap was inserted by the Finance Act 2023 as a proviso to s.54 and s.54F, effective from assessment year 2024-25 (i.e., transfers on or after 1 April 2023). The statutory language makes it an aggregate lifetime ceiling: the exemption is capped at "the aggregate of the amount of exemption under this section claimed by the assessee in any previous year or previous years." It is not ₹10 crore per transaction, per property, or per financial year — it is ₹10 crore of cumulative s.54 + s.54F exemption across the assessee's lifetime.
What the proviso actually says
The operative restriction in s.54 (mirrored in s.54F):
"Provided that the amount of exemption under this section shall not exceed ten crore rupees, being the aggregate of the amount of exemption under this section claimed by the assessee in any previous year or previous years."
Three practical consequences:
- The cap is on the exemption amount, not the gain or the reinvestment. If your capital gain is ₹12 crore and you reinvest ₹12 crore, the exemption is min(gain, invested, cap) = ₹10 crore — leaving ₹2 crore of gain taxable.
- It is a running lifetime total. A seller who claimed ₹6 crore of s.54 exemption in AY 2025-26 has only ₹4 crore of cap left for every future year. There is no reset.
- s.54B is deliberately outside the cap. Agricultural-land sellers keep the unlimited exemption, which is why structuring a portion of the sale as agricultural land (where the land genuinely qualifies) is one of the few remaining "uncapped" routes — and a frequent audit focus where the agricultural character is questionable.
The 12.5% / indexation interplay you must not skip
The ₹10 crore cap sits on top of the post-Finance-Act-2024 rate change. For a property transferred on or after 23 July 2024:
- Acquired on/after 23 July 2024: LTCG taxed at 12.5% without indexation (s.112, ITA 1961). No choice.
- Acquired before 23 July 2024: you may choose 12.5% without indexation or 20% with indexation (proviso to s.112). The s.54 exemption then applies to the gain as computed under your chosen route.
The exemption is applied to the taxable gain before the rate — so the ₹10 crore cap can interact sharply with the indexed route. If the indexed gain is itself below ₹10 crore, the cap never binds. (Full arithmetic of the 12.5% / 20% choice is in our indexation removal guide — for sales on or after 23 July 2024.)
Worked example: Suresh sells a Mumbai flat
Persona: Suresh, resident individual, HNI, FY 2025-26 (AY 2026-27).
Facts:
- Sells a residential flat in Mumbai in December 2025 for ₹25,00,00,000 (₹25 crore)
- Acquired it in FY 2016-17 for ₹13,00,00,000 (₹13 crore); held more than 24 months → long-term
- Within the s.54 window (1 year before / 2 years after transfer), reinvests ₹12,00,00,000 (₹12 crore) in a new residential flat in India
Step 1 — Compute LTCG under s.48
₹25,00,00,000 − ₹13,00,00,000 = ₹12,00,00,000 (₹12 crore).
Step 2 — Apply the s.54 exemption, capped at ₹10 crore
Uncapped exemption would be min(gain ₹12 crore, reinvested ₹12 crore) = ₹12 crore.
Capped exemption = ₹10,00,00,000 (₹10 crore).
Taxable LTCG = ₹12,00,00,000 − ₹10,00,00,000 = ₹2,00,00,000 (₹2 crore).
Step 3 — Tax at 12.5% (acquisition pre-23 Jul 2024; 12.5% route shown)
₹2,00,00,000 × 12.5% = ₹25,00,000, plus 4% health & education cess = ₹26,00,000.
The arithmetic is reproducible: gain ₹12 crore → exemption capped at ₹10 crore → taxable ₹2 crore → tax ₹25 lakh (₹26 lakh with cess). The ₹2 crore is the reinvestment beyond the cap (₹12 crore invested − ₹10 crore cap) that no longer earns exemption.
Note on the indexed route: because Suresh acquired before 23 July 2024, he may instead compute the gain at 20% with CII indexation. If the indexed gain falls below ₹10 crore, the cap does not bind and the exemption can absorb the entire indexed gain — which is why, for older high-value property, running both computations before choosing the s.54 route is the single most valuable step. Use the Capital Gains Calculator 2025 to see both options.
What changed FY 2025-26: before/after diff
Filing and structuring points for HNI sellers
- Park the gain properly. If the new house is not yet identified or paid for by the filing date, deposit the capital gain in the Capital Gains Account Scheme (CGAS) before the ITR due date under s.54(2). Deposit in the wrong form (e.g., a fixed deposit outside CGAS) forfeits the exemption.
- Timing rules are hard deadlines. Purchase within 1 year before or 2 years after the transfer, or construct within 3 years. A booking without possession may not satisfy the test — hold registration/possession evidence.
- One or two houses only. Since AY 2020-21 you may buy two houses under s.54 only if the capital gain does not exceed ₹2 crore; otherwise one house. Plan the reinvestment before sale, not after.
- Track cumulative usage. Keep a running note of every s.54/54F exemption ever claimed. The ₹10 crore cap is lifetime, and the department's system aggregates across years and returns.
- 54EC as a complement. The ₹50 lakh per financial year cap on NHAI/REC bonds is separate from the ₹10 crore cap and runs in parallel — a bond route is often the cleanest way to park the residual gain over multiple financial years.
Frequently asked questions
1. Is the Section 54 exemption really capped at ₹10 crore?
Yes. From AY 2024-25, s.54 and s.54F exemption is limited to ₹10 crore aggregate per assessee across all years, under a proviso inserted by the Finance Act 2023. Transfers before 1 April 2023 were uncapped.2. Is the cap ₹10 crore per transaction or per lifetime?
Per lifetime. The proviso caps the aggregate of exemption claimed in any previous year or years. Claim ₹6 crore in one year and only ₹4 crore remains for every future year.3. Does the cap apply to agricultural land under s.54B?
No. s.54B (agricultural land) has no ₹10 crore cap. The cap applies to s.54 and s.54F only. s.54EC keeps its separate ₹50 lakh per financial year limit.4. I sold property in FY 2025-26 — which rate applies to the taxable residue?
12.5% without indexation, or 20% with indexation if you acquired the property before 23 July 2024. For property bought on/after 23 July 2024, only 12.5% applies. The s.54 exemption is applied to the gain before the rate.5. What happens if I reinvest but exceed the cap?
The exemption is limited to ₹10 crore; the excess gain remains taxable. In Suresh's example, a ₹12 crore reinvestment yielded only ₹10 crore of exemption, leaving ₹2 crore taxable at the applicable rate.6. Does the new house have to be in India?
Yes, since FA 2023. The s.54 exemption now requires the new residential house to be situated in India. A house bought abroad no longer qualifies, even if the sale proceeds originated from an Indian property.7. Can I still use CGAS to defer the decision?
Yes. Deposit the capital gain in the Capital Gains Account Scheme before the ITR due date under s.54(2) to preserve the exemption while the new house is being identified — but the house must still be acquired/constructed within the statutory window.---
Last verified: 2026-08-05 (FY 2025-26 / AY 2026-27)
Sources: s.54, s.54F, s.54B, s.54EC, Income-tax Act, 1961; provisos inserted by the Finance Act 2023 (₹10 crore cap, India-only residential house, effective AY 2024-25); s.112 as amended by the Finance (No. 2) Act 2024 (12.5% no-indexation, 20%-with-indexation choice for pre-23-07-2024 acquisitions); Rule 115 (CGAS), Income-tax Rules 1962; s.54(2) deposit requirement. Worked-example arithmetic reproducible from the figures above. For an HNI property sale before you commit to a reinvestment structure, book a consultation at harunraaj.com.
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