Under Section 54 of the Income Tax Act, taxpayers can avoid paying taxes on proceeds from residential property sales if they reinvest the gains in another residential house. According to reports from Mint, the exemption is available to individuals and Hindu Undivided Families (HUFs) only, with a maximum limit of ₹10 crore. The provision applies to both old and new tax regimes, but excludes firms, LLPs, companies, and other entities from claiming this benefit. Recent updates to the Income Tax Act 2025 clarify that if an assessee deposited unutilised capital gains in the Capital Gains Account Scheme before 1 April 2026, such deposits continue to be governed by the conditions of the old Act.
To qualify for the exemption, taxpayers must purchase a new residential property within 1 year before or 2 years after the sale date, or construct a new house within 3 years from the sale date. As reported by Mint, in cases involving compulsory acquisition, the time limit is calculated from the date of receipt of compensation. The exemption is specifically designed for long-term capital gains, meaning the property must have been held for more than 2 years before being sold. Recent clarifications under Section 536(2)(h) of the 2025 Act specify that if the time limit expires, the unutilised portion becomes taxable in the year of expiry under the new Act, but computation follows the old exemption structure.
The capital gains account scheme (CGAS) was introduced in 1988 to help taxpayers preserve eligibility for capital gains tax exemptions when unable to immediately reinvest proceeds. According to Mint, this scheme allows taxpayers to deposit unutilized capital gains in a designated account until funds are used for specified purposes. The scheme is available to all taxpayers regardless of legal status, including individuals, HUFs, companies, trusts, and other eligible entities. Recent updates under the 2025 Act confirm that deposits made before 1 April 2026 continue to be governed by the old Act's conditions, while new deposits after this date fall under the new Act's provisions.
The CGAS provides additional time for taxpayers, particularly those involved in property construction, as construction projects typically require longer durations and cannot be completed in one investment. As reported by Mint, investing gains in this account is treated the same as direct reinvestment for exemption purposes, while short-term capital gains remain ineligible for the scheme. Recent clarifications under Section 536(2)(h) of the 2025 Act ensure that if conditions attached to a deduction or exemption granted under the repealed Act are violated after 1 April 2026, the amount earlier claimed as exempt shall be deemed to be income of the assessee in the year of violation. The scheme ensures compliance with income tax laws while providing convenience for taxpayers.
