PROSPERR.IO

My friend Rajan is a property lawyer in Mumbai. Last year he called me genuinely baffled. His client sold high-value property, made ₹14 crore in capital gains, reinvested every rupee in a luxury home, and expected zero tax. That's how it always worked.

Except it didn't work that way anymore.

"His CA says he owes ₹50 lakh in tax even though he reinvested everything," Rajan said. "Client is furious. Says he followed the rules."

He followed the old rules. Finance Act 2023 changed them effective from AY 2024-25. And this change is catching people off guard.

Let me explain what changed, why, and how it affects your planning.

What These Sections Did Before the Change

Section 54: Sell a residential house, make long-term capital gains, buy or construct another residential house within time limits capital gains tax fully or partially exempt. No upper limit. Zero cap.

Section 54F: Sell any long-term asset (land, gold, sharesanything except residential house), reinvest net sale consideration in a residential housecapital gains tax fully or partially exempt. Again, no upper limit.

Before April 1, 2024, there was genuinely no ceiling. Sell property for ₹50 crore, make ₹30 crore gains, reinvest ₹30 crore—entire amount exempt. The government decided this was too generous.

What Actually Changed: The ₹10 Crore Cap

Finance Act 2023 inserted a proviso into both Section 54 and 54F. Effective from April 1, 2024 (Assessment Year 2024-25 onwards):

The maximum exemption under Section 54 or 54F is capped at ₹10 crore.

If the cost of your new property exceeds ₹10 crore, the amount above ₹10 crore is simply ignored for calculating the exemption.

So even if you invest ₹18 crore in a new house, only ₹10 crore counts for exemption purposes.

Let's see exactly what this means with numbers:

Scenario 1 (Under ₹10 Crore—No Impact):

• Capital gains: ₹6 crore
• New house cost: ₹7 crore
• Exemption: Full ₹6 crore (new house cost exceeds gains, full exemption applies)
• Tax: Zero

This person is unaffected. The cap doesn't kick in.

Scenario 2 (Rajan's Client—Fully Impacted):

• Capital gains: ₹14 crore
• New house cost: ₹14 crore
• Amount considered for exemption: ₹10 crore (cap applies)
• Taxable gains: ₹14 crore - ₹10 crore = ₹4 crore
• Tax @ 12.5%: ₹50 lakh

Even though he reinvested every rupee, ₹4 crore still gets taxed. That's the new reality.

Scenario 3 (Partial Investment Situation):

• Capital gains: ₹12 crore
• New house cost: ₹8 crore
• Amount considered for exemption: ₹8 crore (below cap, so no cap issue)
• Taxable gains: ₹12 crore - ₹8 crore = ₹4 crore
• Tax: On ₹4 crore

Here the cap doesn't apply because the investment itself is below ₹10 crore.

Who Does This Actually Affect?

The government's stated reason was to stop "misuse" by high-net-worth individuals who were using these sections to park unlimited amounts in luxury properties and pay zero tax.

For most regular people even those with decent property holdings this change doesn't matter at all.

Here's a simple way to check if you're affected:

Any For salaried people selling an inherited flat or a home they've held for years, capital gains above ₹10 crore from a single property transaction are rare. But it's important to know the rule exists so you can plan properly if you're ever in that situation.

The CGAS Cap: The Change People Missed

Here's something even fewer people noticed. The same Finance Act 2023 also amended the Capital Gains Account Scheme (CGAS) provisions.

Before the change, if you couldn't reinvest before filing your ITR, you'd deposit the entire capital gains (under Section 54) or net consideration (under Section 54F) in a CGAS account. No limit.

After the change, CGAS deposit provisions now apply only to amounts up to ₹10 crore.

What this means in practice:

Say you made ₹13 crore in capital gains from selling your house. Haven't found a suitable property yet. Filing deadline approaching.

You can deposit only up to ₹10 crore in CGAS to protect from tax. The remaining ₹3 crore? That portion cannot be sheltered through CGAS. It becomes taxable in the year of sale.

This is a double hit for high-value transactions cap on exemption AND cap on CGAS protection.

How Section 54 and 54F Changes Compare

Both sections got the same treatment same ₹10 crore cap, same CGAS amendment. But they have different conditions, and those differences still matter.

The Section 54F restriction on house ownership catches people. If you're selling land or shares and already own two or more houses on the date of sale, you cannot claim Section 54F. This rule predates the 2024-25 changes but is worth repeating because people forget it.

Real-World Example: Section 54F After the Change

Meena sold shares she'd held for 8 years in FY 2024-25. Capital gains: ₹9.5 crore. She used the entire proceeds to buy a residential flat for ₹11 crore.

Before the change (old rule): Full ₹9.5 crore capital gains would have been exempt under Section 54F because she invested more than her gains in a residential property.

After the change (from AY 2024-25):

• New house cost: ₹11 crore
• Cap kicks in: Maximum exemption = ₹10 crore
• Capital gains: ₹9.5 crore
• Exemption: ₹9.5 crore (because gains are less than ₹10 crore cap)
• Tax: Zero

Wait Meena is fine. Why? Because even though her house cost exceeded ₹10 crore, her actual capital gains (₹9.5 crore) are below the cap. The exemption is the lower of gains or new house cost, capped at ₹10 crore. Her gains are ₹9.5 crore, which is under ₹10 crore. Full exemption.

This is the nuance that trips people up. The cap applies to the exemption amount—not automatically to the transaction size.

What About Budget 2024 Indexation Changes?

Separate from the ₹10 crore cap but affects gain calculations.

From July 23, 2024, LTCG on property is at 12.5% without indexation. For property bought before that date, choose between 12.5% without or 20% with indexation.

This matters because higher indexed cost = lower gains = less you need to reinvest for full exemption under Section 54 or 54F. Always calculate both options before deciding.

Common Mistakes After the New Rules

• Thinking the cap applies when it doesn't: Someone with ₹8 crore gains reinvesting ₹9 crore panics about the cap. Gains are below ₹10 crore—full exemption applies.
• Depositing full amount in CGAS beyond the cap: Depositing ₹12 crore in CGAS thinking it's all protected. Only ₹10 crore is protected. ₹2 crore becomes taxable.
• Ignoring 54F house ownership condition: Already owning two houses and selling shares hoping to claim 54F. Can't. This rule predates 2024-25 changes but remains critical.
• Mixing up 54 and 54F reinvestment basis: Under 54F, you reinvest full net sale consideration, not just gains. Under 54, you reinvest only the gains. Confusion leads to miscalculation.
• Forgetting the ₹2 crore two-house option: If Section 54 gains are ₹1.5 crore, you can buy two houses once in lifetime. Many people overlook this.

Conclusion

Finance Act 2023 changes to Section 54 and 54F are targeted but significant. The government stopped unlimited tax-free rollover of enormous property gains into luxury homes. For most people, those with gains below ₹10 crore, nothing has practically changed. Same rules, same exemptions, same peace of mind from reinvesting in a new home. For high-value transactions, plan carefully. Some tax will be payable even with full reinvestment. Section 54EC bonds (up to ₹50 lakh, locked for 5 years) can absorb some remaining taxable gains beyond the cap. Rajan's client paid the tax, moved into his new home, but spent weeks furious about a rule he'd never heard of. Don't be that person. Know the cap. Plan accordingly

Book a free tax assessment call with us Today! 

Frequently Asked Questions

Q1: My capital gains from selling my flat are ₹7 crore. Does the ₹10 crore cap affect me?

No, you're completely unaffected. The ₹10 crore cap only matters when your capital gains OR the new property cost exceeds ₹10 crore. With ₹7 crore in gains, if you reinvest ₹7 crore or more in a residential property, full exemption applies. The cap simply doesn't come into play for your situation. Most people selling regular residential properties even those making very substantial gains—won't hit the ₹10 crore threshold. The change primarily targets luxury and super-premium transactions.

Q2: I sold agricultural land for ₹15 crore, made ₹11 crore in capital gains, and bought a house for ₹12 crore. How much is exempt under Section 54F from AY 2024-25?

The exemption is capped at ₹10 crore. Your gains are ₹11 crore, house cost is ₹12 crore. Without the cap, full ₹11 crore would be exempt (house cost exceeds gains). With the cap, only ₹10 crore is exempt. So ₹1 crore becomes taxable. At 12.5% LTCG rate, that's ₹12.5 lakh in tax—on a transaction where you reinvested everything. Not ideal, but that's the new rule.

Q3: I'm selling my house in August 2025 and expecting ₹8 crore in capital gains. I plan to deposit in CGAS while I look for property. How much can I deposit?

Your gains are ₹8 crore, which is below the ₹10 crore cap, so you can deposit the full ₹8 crore in CGAS. The CGAS cap restriction only bites when your gains (under Section 54) or net consideration (under 54F) exceeds ₹10 crore. For your situation, no restriction on CGAS deposit. You have 2 years from the date of sale to purchase or 3 years to construct using that CGAS money. Just don't let the deadline expire—unutilized CGAS becomes taxable in the year the time limit ends.

Q4: Can someone claim both Section 54 and Section 54F exemptions by reinvesting in the same house in the same year?

Yes, this is legally possible and not uncommon in complex transactions. If you sell a residential house (generating Section 54 gains) and also sell shares (generating Section 54F gains) in the same year, and you invest in one residential property, you can claim exemption under both sections against that single investment. The conditions of each section must be independently satisfied. The ₹10 crore cap applies separately to each section so theoretically ₹10 crore under 54 and ₹10 crore under 54F. However, the house ownership condition under Section 54F (can't own more than one house excluding new one) might complicate things. Get a CA to structure this properly.

Q5: I sold property in March 2024. The ₹10 crore cap applies from AY 2024-25. Does this mean the cap applies to my transaction?

Yes. AY 2024-25 means income earned in FY 2023-24 (April 1, 2023 to March 31, 2024). Since you sold in March 2024, that falls within FY 2023-24, which is Assessment Year 2024-25. So the ₹10 crore cap fully applies to your transaction. Many people assume AY 2024-25 means sales in April 2024 onwards—it doesn't. If your sale was anywhere in FY 2023-24 (April 2023 to March 2024), the new cap applies. Check your gains carefully.