From houses to farmland: 9 ways to save capital gains tax on property sales under Income Tax Act

Selling a house, plot, or even agricultural land doesn’t always mean paying hefty capital gains tax. In fact, under the Income Tax Act, 1961, there are nine different sections that allow taxpayers to either pay zero or substantially reduce tax liability on such transactions. From homeowners to farmers to industrial undertakings, these provisions provide structured ways to reinvest and claim exemptions. 

Beyond Sections 54 and 54F 

Most individuals are familiar with Section 54 (sale of residential property and reinvestment in another) and Section 54F (sale of any other capital asset and investment in a house property). These two remain the most widely used provisions for saving tax on long-term capital gains. However, exemptions are not limited to these alone. Several other sections cover specific situations ranging from compulsory acquisition of land to investments in government-specified bonds and start-ups. 

Key Exemptions Explained 

Section 54: Provides exemption when capital gains from selling a residential house are reinvested in another residential property in India. 

Section 54F: Offers relief when long-term capital gains from selling assets other than a house (like land, shares, or gold) are reinvested in a residential property. 

Section 54B: Specially designed for farmers, it allows exemption on gains from the sale of agricultural land if the proceeds are used to purchase new agricultural land. 

Section 54D: Applies when land or buildings forming part of an industrial undertaking are compulsorily acquired. Exemption is granted if the compensation is used for shifting or re-establishing the industrial unit. 

Section 54EC: Allows taxpayers to invest gains from land or building sales into specified bonds like NHAI or REC within six months to claim exemption. 

Section 54EE: Provides exemption when gains from any long-term asset are invested in government-notified funds, subject to a cap of ₹50 lakh. 

Section 54G & 54GA: These benefit industrial undertakings that shift operations from urban areas to non-urban areas or Special Economic Zones (SEZs), respectively. 

Section 54GB: Encourages investment in eligible start-ups, allowing individuals and HUFs to claim exemption by investing proceeds from the sale of residential property into shares of such companies. 

Comparing Section 54 vs Section 54F 

A closer look at Sections 54 and 54F shows that while both allow savings on capital gains through reinvestment in a new residential property, their applicability differs: 

• Section 54 is restricted to gains from selling a residential house, while 
• Section 54F applies to gains from selling any long-term capital asset other than a house property. 

Both require reinvestment within 1 year before or 2 years after purchase (or within 3 years for construction). The exemption amount depends on whether the full or partial sale consideration is reinvested. 

Exemptions for Agriculture, Industry and Bonds 

Sections 54B, 54D, and 54EC extend benefits beyond residential properties: 

• Farmers reinvesting in agricultural land. 
• Industries shifting after compulsory acquisition. 
• Taxpayers investing in specified bonds to defer taxation. 

Similarly, Sections 54EE, 54G, and 54GB cover investments in government-notified funds, relocation of businesses, and contributions to start-ups, expanding the scope of tax-saving options. 

Why It Matters 

For taxpayers, these provisions can mean zero tax outgo if conditions are met. For instance, investing the full sale consideration in a new property under Section 54F wipes out capital gains tax entirely. On the other hand, failing to reinvest within timelines or misusing the Capital Gains Account Scheme (CGAS) can result in reversal of exemptions. 

Capital gains tax exemptions under the Income Tax Act are not one-size-fits-all. From homeowners to entrepreneurs, farmers, and industrial units, each section caters to different needs. Tax experts advise individuals to carefully evaluate which section applies best before planning reinvestments, as timely and compliant action could save lakhs in taxes.