Navigating capital gains tax on property sales can be complex, especially with changes introduced in 2025. However, there are several legal ways to pay zero capital gains tax on your residential, commercial, or land sales. Whether you are selling your house, a commercial property, or a plot, understanding these exemptions can potentially save you a significant amount of money. In this guide, we will break down how you can achieve this in 2025.
Understanding Capital Gains Tax
What is a Capital Asset?
According to the Income Tax Act, a capital asset includes:
- Residential and commercial land
- Buildings (residential or commercial)
- Shares, bonds, mutual funds
- Gold, jewellery, and machinery
- Vehicles and intangible assets like trademarks and patents
Rural agricultural land is excluded, meaning there is no capital gains tax on its sale.
Short-Term vs. Long-Term Capital Gains
There are two types of capital gains taxes on property:
- Short-Term Capital Gains (STCG): Applied when a property is sold within 24 months of purchase. The gain is added to your income and taxed according to your slab rate.
- Long-Term Capital Gains (LTCG): Applied when a property is held for more than 24 months before selling. The profit is taxed separately at special rates.
The Tax Rates for 2025
For long-term capital gains:
- 12.5% (New Regime): No indexation benefit.
- 20% (Old Regime): With indexation benefit.
For properties purchased before July 23, 2025, you can choose between these two tax rates.
Real-Life Calculation Example
Scenario:
- Purchase Year: 2016-17
- Purchase Price: ₹24 lakh
- Sale Year: 2025-26
- Sale Price: ₹50 lakh
Option 1: Using Old Regime (20% with Indexation)
- Adjusted purchase price (indexed cost) = ₹33 lakh (using CII)
- Capital Gains = ₹50 lakh – ₹33 lakh = ₹17 lakh
- Tax = 20% of ₹17 lakh = ₹3.4 lakh
Option 2: Using New Regime (12.5% without Indexation)
- Capital Gains = ₹50 lakh – ₹24 lakh = ₹26 lakh
- Tax = 12.5% of ₹26 lakh = ₹3.25 lakh
In this case, the new regime saves ₹15,000 in taxes.
However, regardless of which tax slab you fall under, you can potentially reduce this tax to zero using legal exemptions under the Income Tax Act.
How to Pay Zero Capital Gains Tax
1. Section 54: Exemption on Sale of Residential Property
Who Can Claim?
- Only individuals and Hindu Undivided Families (HUFs).
- Not available to companies or firms.
Eligible Assets
- Applies when you sell a residential house property.
How to Claim Exemption?
- Reinvest the capital gains in one or two residential properties.
Time Limits:
- Purchase: Within 1 year before or 2 years after the sale.
- Construction: Within 3 years after the sale.
Important Conditions:
- Only the capital gains (₹26 lakh in our example) need to be reinvested, not the entire sale proceeds.
- If capital gains exceed ₹2 crore, you can only invest in one property.
- Maximum exemption is capped at ₹10 crore.
Example:
In our example:
- You made ₹26 lakh in capital gains.
- If you invest this amount in a new residential property, you will pay zero capital gains tax under Section 54.
Capital Gains Account Scheme:
- If the funds are not immediately reinvested, they must be deposited in a capital gains account with a bank until the purchase/construction is completed.
2. Section 54EC: Exemption via Specified Bonds
Who Can Claim?
- Any person, including individuals, HUFs, companies, and firms.
Eligible Assets:
- Applicable on sale of any long-term capital asset, including land, buildings, shares, etc.
How to Claim Exemption?
- Invest the capital gains in specified bonds like:
- NHAI Bonds (National Highway Authority of India)
- REC Bonds (Rural Electrification Corporation)
- IRFC Bonds (Indian Railway Finance Corporation)
- PFC Bonds (Power Finance Corporation)
Conditions:
- Invest within 6 months of sale.
- Maximum investment allowed = ₹50 lakh.
- Bonds have a 5-year lock-in.
- Interest income from these bonds is taxable (effective returns of 4-5% for those in the 30% tax bracket).
Example:
- If you made ₹26 lakh in capital gains, you can invest this amount in NHAI or REC bonds within 6 months and pay zero capital gains tax.
3. Section 54F: Exemption on Sale of Any Long-Term Capital Asset
Who Can Claim?
- Only individuals and HUFs.
Eligible Assets:
- Sale of any long-term capital asset except a house property (e.g., land, shares, commercial property).
How to Claim Exemption?
- Entire sale proceeds (not just the capital gains) must be invested in a new residential property.
Time Limits:
- Purchase: Within 1 year before or 2 years after the sale.
- Construction: Within 3 years after the sale.
Other Conditions:
- You must not own more than one house (except the new one) at the time of sale.
- Maximum exemption is ₹10 crore.
Example:
- If you sold land or shares for ₹50 lakh, you need to reinvest the entire ₹50 lakh into a new residential property to claim full exemption under Section 54F.
Comparison of Sections 54, 54EC, and 54F
| Criteria | Section 54 | Section 54EC | Section 54F |
|---|---|---|---|
| Who can claim? | Individual, HUF | Any person (incl. companies) | Individual, HUF |
| Applicable on sale of? | Residential house property | Any long-term capital asset | Any long-term capital asset except house |
| Where to reinvest? | 1 or 2 Residential properties | NHAI, REC, IRFC, PFC Bonds | One Residential property |
| Time frame to reinvest? | 1 year before or 2 years after sale (3 for construction) | Within 6 months | 1 year before or 2 years after sale (3 for construction) |
| Max exemption limit | ₹10 crore | ₹50 lakh | ₹10 crore |
| Funds to reinvest | Only Capital Gains | Only Capital Gains | Entire Sale Proceeds |
| Capital Gains Account required? | Yes (if not immediately reinvested) | No | Yes (if not immediately reinvested) |
By using the exemptions under Sections 54, 54EC, and 54F, you can legally bring down your capital gains tax liability to zero in 2025. The key is to plan your reinvestment strategy smartly and stay updated on eligibility criteria, timelines, and limits.
Pro Tip:
- Section 54 is ideal for those selling residential properties.
- Section 54EC is perfect for anyone (including businesses) selling any long-term capital asset but preferring safer, fixed returns.
- Section 54F benefits those selling land, shares, or commercial property who want to reinvest in housing.
