Can I Save Tax on Capital Gains by Reinvesting in Property?
Learn about tax exemptions on long-term capital gains when reinvesting in real estate and mutual funds.
Capital GainsTax ExemptionReal EstateIncome TaxMutual FundsReal EstateNov 16, 2025
These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.
I am a salaried individual and earned Rs 25 lakh as capital gains from equities and mutual funds in 2024–25. I paid the applicable tax with interest before the September 2025 deadline. Now that I plan to buy my first home, can I revise my ITR to claim a refund of the tax paid on these gains since I intend to invest the amount in the property?
Sudhir Kaushik, Co-founder & CEO, TaxSpanner: Section 54F of the Income Tax Act offers relief on long-term capital gains (LTCG) when the net sale proceeds from equity mutual funds or shares are invested in a residential property. The investment must be made within one year before or two years after the transfer, or construction must be completed within three years. If the investment is not made before the due date for filing the income tax return (ITR), the unutilised amount should be deposited in the Capital Gains Account Scheme (CGAS) to retain the exemption. In the present case, the return of income has already been filed, and tax on the capital gains has been duly paid without any deposit into CGAS. Consequently, the statutory condition for availing the exemption has not been satisfied, and a revised return cannot be used to retrospectively claim the benefit. For clarity, short-term capital gains (STCG) on equity remain taxable at a flat rate of 20% and are outside the scope of this exemption.
I bought a flat for `55 lakh in June 2024 with a `48 lakh IDBI Bank loan, jointly with my wife. We both pay the EMI. In FY 2024–25, I sold mutual funds for `15.78 lakh (cost `7.51 lakh; gain `8.26 lakh). I also sold a flat in my name in May 2025 for `22 lakh, bought in 2008 for `5.9 lakh. Can I offset these gains against the cost of the new flat purchased in June 2024?
Shubham Agrawal, Senior Taxation Adviser, TaxFile.in: Your capital gain from the sale of the house on 31 May will be `5.81 lakh using indexation for the purchase year 2008 and sale year 2005-06. Under Section 54 of the Income Tax Act, when a residential property is sold and the capital gain is reinvested in another residential property either bought 1 year before or within the next 2 years, the capital gain is exempt. Thus, you may seek exemption on that. As far as capital gain on mutual funds is concerned, that is governed by Section 54F, which mandates that not just capital gains but the entire sale proceeds of `15.78 lakh from these funds be reinvested in a residential property either 1 year before or within the next 2 years. As this is your case, your mutual fund transaction will also be exempt given that you should not own more than one house (apart from the one in which re-investment is made) on the date of sale of these mutual funds.
Frequently Asked Questions
Can I claim a tax refund after paying capital gains tax if I reinvest in a property?
No, you cannot claim a refund retrospectively. The investment must be made within the specified time frame and before the ITR filing deadline to qualify for the exemption.
What is the time frame for reinvesting capital gains in a residential property?
You must reinvest the capital gains within one year before or two years after the transfer, or the construction must be completed within three years.
Can I offset short-term capital gains from equities against the cost of a new property?
No, short-term capital gains on equities are taxable at a flat rate of 20% and are not eligible for the exemption under Section 54F.
What is the Capital Gains Account Scheme (CGAS)?
The CGAS is a special account where you can deposit the unutilised amount of capital gains to retain the tax exemption if the reinvestment is not made before the ITR filing deadline.
Can I reinvest capital gains from mutual funds in a residential property?
Yes, you can reinvest the entire sale proceeds from mutual funds in a residential property to qualify for the tax exemption under Section 54F, provided you meet the eligibility criteria.
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