Sold two flats, earned Rs 1.15 crore gains: Can another property purchase save tax?

• Section 54 allows exemption for gains reinvested in a house.
• One-time exemption for two houses if gains are below Rs 2 crore.
• Buying land alone doesn't qualify unless a house is constructed.

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Section 54 of the Income Tax Act provides an exemption from long-term capital gains on the sale or transfer of a residential house to an individual or an HUF if such long-term capital gains are utilised to acquire a residential house property in India.

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I have a total long-term capital gain of Rs. 1.15 crore on two residential flats during the current financial year. The first house was sold on June 2, 2025, resulting in long-term capital gains of Rs 85 lakhs. The second sale is made on Jan. 20, 2026, when my long-term capital gains amount to Rs 30 lakh. I have already bought a flat for Rs 85 lakh in June 2025. Can I purchase one more flat next year against the long-term capital gains I have made and claim an exemption for it? I do not want to pay taxes and am ready to invest in some residential land. How can I save on capital gains taxes?

Expert's Advice: Section 54 of the Income Tax Act provides an exemption from long-term capital gains on the sale or transfer of a residential house to an individual or an HUF if such long-term capital gains are utilised to acquire a residential house property in India. The long-term capital gains can be utilised either to acquire a ready-to-move-in house, to self-construct a residential property, or to book an under-construction property within the prescribed time period.

The long term capital gains arising from sale of one residential house property can be invested only for acquiring one residential property in India except that the law allows once in a life time opportunity to invest long term capital gains from sale of one residential house property in two residential properties in India only if the amount of such long term capital gains does not exceed two crore rupees.

Under the law, there is a restriction on the number of times you can claim exemption under section 54 or for the number of houses for which you can claim exemption during the same financial year, as long as a one-to-one matching of investment of long-term capital gains is established. The exemption cannot be claimed on an aggregate basis but is available on one to one basis. Even you can claim exemption for long-term capital gains arising from the sale of more than one residential house property by investing in a single property, but not the other way around, except once in a lifetime, as explained above. There is a limit of Rs. 10 Crores on the cost of the house for which the exemption can be claimed.

For a ready-to-move-in house, the investment must be made within two years of the residential house's sale. For the long-term capital gains of Rs 85 lakh from the first house, you can claim exemption as you have already invested Rs 85 lakh in the same financial year. For long-term capital gains arising on the sale of the second house sold in January 2026, you have until December 2027 to claim the exemption under section 54. Please note that the cost of the second flat you plan to buy in the next year should be at least 30 lakh rupees. In case you are not able to utilise the money for buying the residential house by the due date of filing your ITR, you will have to deposit the unutilised money in a bank account under the Capital Gains Account Scheme, which can be used for making a payment to buy the house within two years from the date of sale of the second house.

No exemption is available for the pure purchase of a plot of land under section 54 unless you construct a house on the plot and the construction is completed within three years from the date of sale of the house. In this case also, the unutilised money has to be deposited with the bank under the Capital Gains Account Scheme.