Section 54 vs 54F for NRIs: Capital Gains Exemption on Reinvesting Sale Proceeds

General information, not tax or legal advice. Rules as of October 2026.

If you sell property in India and put the money back into a home in India, the tax law lets you wipe out some or all of the long-term capital gain. The relief is open to NRIs on the same terms as residents. The catch is that there are two separate reliefs with different conditions, and applying the wrong one, missing a date or owning one flat too many can cost you the whole exemption.

This guide puts both side by side, explains how each is calculated, walks through an illustrative example and lists the mistakes that most often get claims rejected. For the wider set of ways to cut the tax on a sale, see our playbook on how to save capital gains tax when selling property in India as an NRI.

Section 54 and 54F under the new Income-tax Act, 2025

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. The two reinvestment reliefs were carried over with new numbers and largely the same substance. Section 54 is now Section 82, Section 54F is now Section 86, and the Section 54EC bonds relief is now Section 85. The new Act also uses a single tax year in place of the old previous year and assessment year pair.

Because most buyers, brokers, banks and older documents still say 54 and 54F, this guide uses the old numbers in places where they help readers follow along. For a sale made on or after 1 April 2026 the claim is made under the new sections; for a sale made before that date the 1961 Act provisions continue to govern that transaction, including any reinvestment period still running.

Can NRIs claim Section 54 or 54F exemption?

Yes. Both reliefs are available to individuals and Hindu Undivided Families, whatever their residential status. An NRI selling a flat in Mumbai has exactly the same right to the exemption as a resident selling the same flat. Your residential status matters for how the gain is taxed and how much TDS the buyer deducts, but it does not block the exemption. If you are not sure which status applies to you this year, our residency calculator works it out from your days in India.

Two conditions trip NRIs up more than residents. First, the new house must be in India; a home in Dubai, London or New Jersey does not count, however much of the sale money goes into it. Second, both reliefs apply only to long-term gains. Immovable property must be held for more than 24 months before the sale to count as long term. If you sold earlier than that, the gain is short term, taxed at slab rates, and neither relief applies. The two-year rule is explained in our guide to short-term vs long-term capital gains for NRIs.

Section 54 vs 54F: side-by-side comparison

If you want to see how much of your own gain each route would shelter, run your numbers through our reinvestment calculator before you sign anything.

Section 54 for NRIs: selling a house and buying another

Section 82 (earlier Section 54) is the simpler relief. It applies when you sell a residential house that you have held for more than 24 months and use the gain to buy or build a residential house in India. The house sold can be self-occupied, let out or vacant; what matters is that it is a residential house. A plot of land on its own is not a house, so selling a plot falls under Section 54F instead.

›Section 54 eligibility checklist

• You are an individual or HUF, resident or non-resident.
• The asset sold is a residential house held for more than 24 months.
• The new asset is one residential house in India.
• You buy the new house within 1 year before or 2 years after the date of sale, or complete construction within 3 years after it.
• The exemption equals the capital gain or the cost of the new house, whichever is lower, with the cost counted only up to ₹10 crore.
• There is no limit on how many other houses you own.

Because you only need to reinvest the gain, not the whole sale price, Section 54 is forgiving. If you sell for ₹2 crore with a gain of ₹80 lakh, a new flat costing ₹80 lakh is enough for a full exemption. Any part of the gain you do not reinvest stays taxable at 12.5% plus surcharge and cess.

›The two-house option

If your long-term gain is ₹2 crore or less, you may use it to buy two residential houses in India instead of one. This is a once-in-a-lifetime choice: once you have used it, you cannot use it again on a future sale, even of a different property. Many older articles, including some that still circulate, mention the ₹2 crore limit but leave out the once-only rule.

›Buying an under-construction flat

A flat booked with a builder is treated as construction, not purchase, under long-standing CBDT circulars. That means the three-year completion window applies, and payments made to the builder within that window count, even if possession is delayed. If the project slips beyond three years from your sale, the exemption is at risk, which is why a delayed handover is one of the most common reasons claims run into trouble.

Section 54F exemption for NRIs: selling a plot, shop or shares

Section 86 (earlier Section 54F) covers the sale of any long-term capital asset that is not a residential house. For NRIs the common cases are a plot, a shop or office, urban agricultural land, and long-held shares or mutual fund units. Rural agricultural land is not a capital asset at all, so its sale is outside capital gains tax entirely. The holding period depends on the asset: more than 24 months for land, buildings and unlisted shares, and more than 12 months for listed shares and equity mutual fund units.

›Section 54F eligibility checklist

• You are an individual or HUF, resident or non-resident.
• The asset sold is a long-term capital asset other than a residential house.
• The new asset is one residential house in India, bought within 1 year before or 2 years after the sale, or built within 3 years after it.
• On the date of sale you do not own more than one residential house, not counting the new one.
• You do not buy another house within 2 years, or build one within 3 years, after the sale.
• The exemption is proportional to how much of the net sale consideration you reinvest, with the cost of the new house counted only up to ₹10 crore.

›The proportional formula

Section 54F asks you to reinvest the whole net sale consideration, not just the gain. Net sale consideration means the sale price less transfer expenses such as brokerage and legal fees. If you reinvest all of it, the whole gain is exempt. If you reinvest part of it, the exempt gain is: capital gain × cost of the new house ÷ net sale consideration.

Example from a commercial sale: a shop sold for a net ₹1.2 crore produces a long-term gain of ₹70 lakh. You buy a flat for ₹90 lakh. The exempt gain is ₹70 lakh × ₹90 lakh ÷ ₹1.2 crore, which is ₹52.5 lakh. The remaining ₹17.5 lakh is taxable. To exempt the full ₹70 lakh, you would have to put the whole ₹1.2 crore into the new house.

›The one-house condition

This is the condition most often missed. On the date you sell the plot, shop or shares, you must not own more than one residential house other than the new one you are buying. If you already own two flats in India, Section 54F is simply not available, no matter how much you reinvest. Section 54 cannot rescue you either, because what you sold was not a house.

For example, if you sell a shop for ₹80 lakh with a gain of ₹45 lakh while owning two flats, buying a third flat does not help. The full ₹45 lakh is taxable unless you use another route, such as Section 54EC bonds. Houses owned abroad are generally not counted, because the condition refers to residential houses and the new house must be in India, but if you hold property outside India, take advice on your exact facts. Courts have also differed on whether a jointly owned house or a house in a spouse's name counts, so treat those cases as unsettled.

Capital Gains Account Scheme: what if you have not bought by the filing date?

You do not have to buy the new house before you file your return, but you do have to show the money is set aside. If the amount has not been used for purchase or construction by the return due date, deposit the unused amount in a Capital Gains Account Scheme account before that date. For most individual NRIs the due date is 31 July after the end of the tax year, unless it is extended. Under Section 54 you deposit the unused gain; under Section 54F you deposit the unused net sale consideration. The deposit counts towards the cost of the new house, and the ₹10 crore cap applies to it too.

• Open the account at an authorised branch of a bank that runs the Capital Gains Accounts Scheme, 1988, typically a public-sector bank such as SBI. Not every branch offers it, so check first.
• Choose Type A (savings style, for withdrawals as you pay a builder) or Type B (term deposit, for money you will not need for a while).
• Make the deposit before the return due date. Depositing after it does not protect the exemption, even if you file late.
• Withdraw only to pay for the new house, and keep the bank's withdrawal forms and builder or seller receipts.
• Report the deposit in the capital gains schedule of your return.
• If any of the deposit is still unused when the 2-year purchase or 3-year construction window closes, that part becomes taxable as long-term gain in the year the window ends. Closing the account early needs the Assessing Officer's approval.

For an NRI still hunting for the right flat when the return is due, this is the safety net. It locks in the exemption while the search continues. Interest earned on the deposit is taxable each year in the normal way.

How TDS works when you plan to reinvest

When an NRI sells, the buyer must deduct TDS on the long-term gain at 12.5% plus surcharge and cess. In practice many buyers deduct on the full sale price because they cannot work out the gain. The buyer cannot take your planned Section 54 or 54F claim into account on their own. To reduce TDS to match your real liability after the exemption, apply for a lower deduction certificate on Form 128 (earlier Form 13) before the sale. Our TDS guide for NRIs explains the process, and the Form 128 calculator estimates the rate you could ask for.

If excess TDS was deducted, you get it back by filing your return and claiming the exemption. That refund only happens if the return is filed, so do not skip it because the tax was already deducted.

Worked example: Section 54 vs 54F for an NRI (illustrative)

Illustrative figures only. Priya lives in Singapore and is an NRI. She bought a flat in Pune in 2014 for ₹60 lakh and sells it in 2026 for ₹1.5 crore, paying ₹2 lakh in brokerage and legal costs. As an NRI she cannot use indexation, so her long-term gain is ₹1.5 crore minus ₹2 lakh minus ₹60 lakh, which is ₹88 lakh. Tax at 12.5% is ₹11 lakh before surcharge and cess.

• Route 1, Section 54: she buys a flat in Bengaluru for ₹70 lakh. ₹70 lakh of the gain is exempt; ₹18 lakh remains taxable, so tax falls to about ₹2.25 lakh before surcharge and cess.
• Route 1 plus 54EC: she also puts the remaining ₹18 lakh into 54EC bonds within six months of the sale. Taxable gain falls to nil.
• Route 2, if the asset had been a plot (Section 54F): same ₹88 lakh gain and ₹1.48 crore net sale consideration. A ₹70 lakh flat now exempts only ₹88 lakh × 70 ÷ 148, about ₹41.6 lakh. Around ₹46.4 lakh stays taxable. To exempt the full gain she would have to invest the whole ₹1.48 crore.
• Route 2 with two flats already owned: if Priya owned two Indian flats on the sale date, Section 54F would not apply at all, and the full ₹88 lakh would be taxable unless she used 54EC bonds for up to ₹50 lakh.

The example shows why the type of asset you sell matters so much. Selling a house only asks you to reinvest the profit; selling anything else asks you to reinvest the whole proceeds.

Combining Section 54 with 54EC bonds

If you do not want to put all the gain into another property, Section 85 (earlier Section 54EC) lets you invest up to ₹50 lakh of a long-term gain on land or a building in specified bonds within six months of the sale, locked in for five years. It works alongside Section 54: you can shelter part of the same gain with a new house and the rest with bonds, as long as the same rupee of gain is not claimed twice. The details, including the six-month trap, are in our guide to Section 54EC bonds for NRIs.

When the exemption is withdrawn

• Selling the new house within 3 years. Under Section 54, the exempt amount is deducted from the cost of the new house, so selling it creates a larger short-term gain. Under Section 54F, the gain exempted earlier is taxed as long-term gain in the year of the resale.
• Buying another house within 2 years, or building one within 3 years, after a Section 54F sale. The gain exempted earlier becomes taxable as long-term gain in that year.
• Not using the Capital Gains Account Scheme deposit in time. The unused part becomes taxable when the window closes.
• Owning more than one other house on the sale date. Section 54F is denied outright.
• Buying the new house abroad. Only a house in India qualifies.

Common mistakes that get claims rejected

1. 1Claiming Section 54F while already owning two or more houses in India.
2. 2Treating a plot sale as a Section 54 case. A plot is not a house, so Section 54F rules apply, including reinvesting the full net proceeds.
3. 3Missing the Capital Gains Account Scheme deposit before the return due date and assuming a later purchase will still count.
4. 4Assuming a builder's delayed possession does not matter. If construction is not complete within 3 years of the sale, the exemption is exposed.
5. 5Forgetting the ₹10 crore cap on the cost of the new house, which matters on high-value metro sales.
6. 6Using up the two-house option on a small gain without realising it can never be used again.
7. 7Not filing a return because TDS was already deducted. The exemption and any refund only come through the return.

Section 54 or 54F: which applies to you?

1. 1Is the gain long term? Property must be held more than 24 months. If not, neither relief applies.
2. 2What did you sell? A residential house points to Section 54. Anything else points to Section 54F.
3. 3For Section 54F, count your houses. If you own more than one other house in India on the sale date, Section 54F is not available.
4. 4How much will you reinvest? Under Section 54, the gain. Under Section 54F, the full net sale consideration for full relief.
5. 5Will you miss the return due date? Deposit the unused amount in a Capital Gains Account Scheme account before it.
6. 6Is any gain left over? Consider 54EC bonds within six months of the sale.

Once the reinvestment is done, any surplus left in your NRO account can be sent abroad within the USD 1 million per financial year limit, with the right certificates. Our guide to NRO account repatriation covers the paperwork. If you would rather have the sale, the exemption and the repatriation handled together, see our property services for NRIs.