Chapter IV - Computation of Total Income
Section 82
Section 82: profit on sale of property used for residence
Section 82 is the reinvestment exemption for long-term capital gains from selling a residential house - the successor to Section 54 of the old Act. An individual or HUF can avoid tax on the gain by buying or constructing a new residential house within specified time windows, subject to a deposit scheme for unutilised amounts and caps introduced for high-value transactions.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Where an individual or Hindu undivided family–– (a) has long-term capital gains arising from the transfer of a capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (original asset); and (b) has within one year before or two years after the date of such transfer purchased, or has within three years after that date constructed, one residential house in India (new asset), then, instead of the capital gain being charged to income-tax as income of the tax year in which the transfer took place, it shall be dealt with as follows:— (i) if the capital gains exceeds the cost of the new asset, such excess shall be charged under section 67, and for computing capital gains arising from the transfer of the new asset within three years of its purchase or construction, the cost shall be nil; or (ii) if the capital gains is equal to or less than the cost of the new asset, no capital gains shall be charged under section 67 and for computing capital gains from the transfer of the new asset within three years of its purchase or construction, the cost shall be reduced by the amount of the capital gains.
(2) If the capital gains referred to in sub-section (1) is not used by the assessee to purchase the new asset within one year before the date of transfer of the original asset, or is not utilised for the purchase or construction of the new asset before filing the return of income under section 263, then— (a) the unutilised amount shall be deposited in a specified bank or institution and utilised as per the scheme notified by the Central Government; (b) such deposit shall be made before the filing of the return and not later than the due date applicable in the case of the assessee for filing the return of income under section 263(1); and (c) the proof of deposit shall be submitted along with such return.
(3) For the purposes of sub-section (1), the amount, already utilised for purchasing or constructing the new asset, together with the deposited amount under sub-section (2) shall, subject to sub-section (7), be deemed to be the cost of the new asset.
(4) If the amount deposited under sub-section (2) is not fully utilised for purchasing or constructing the new asset within the period specified in sub-section (1), then,— (a) the unutilised amount shall be charged to tax under section 67 as the income of the tax year in which the period of three years from the date of the transfer of the original asset expires; and (b) the assessee shall be entitled to withdraw such unutilised amount in accordance with the scheme referred to in sub-section (2).
(5) If the capital gains under sub-section (1) does not exceed two crore rupees, the assessee may, at his option, purchase or construct two residential houses in India, and where such option has been exercised,— (a) for the purposes of sub-section (1)(b), “one residential house in India” shall be read as “two residential houses in India”; and (b) for the purposes of sub-sections (1)(b) and (2), “new asset” shall mean two residential houses in India.
(6) If during any tax year, the assessee has exercised the option mentioned in sub-section (5), he shall not be entitled to exercise such option for the same tax year or any other tax year.
(7) If the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of sub-section (1).
(8) If the capital gains on the transfer of original asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of sub-section (2).
Introduction
This rollover provision covers an individual or HUF selling a long-term residential house and buying or constructing a qualifying replacement house in India. The two-house option, deposit scheme and ₹10 crore ceilings require separate tests.
Key takeaways
Residential-house rollover
An individual or Hindu undivided family with long-term capital gains from a qualifying residential house may obtain relief by purchasing or constructing a residential house in India within the statutory windows.
Use of sale gain
The amount relieved depends on the cost of the new house relative to the capital gain, with special treatment if the new house is transferred within the stated period.
Unspent gain
If the gain has not been used by return filing, the statutory deposit scheme and filing deadline become relevant.
Who qualifies and the basic mechanism
Section 82(1) applies where an individual or HUF has long-term capital gains from transferring a residential house (or land appurtenant to it) whose income is chargeable under "Income from house property" (the "original asset"), and the assessee has purchased a new residential house in India within one year before or two years after the transfer, or constructed one within three years after the transfer (the "new asset"). In that case:
- If the capital gains exceed the cost of the new asset, the excess is taxed under Section 67, and the cost of the new asset is treated as nil for computing gains if it is sold within three years of purchase/construction.
- If the capital gains are equal to or less than the cost of the new asset, no capital gains are taxed, and the cost of the new asset is reduced by the amount of the capital gains for computing gains if it is sold within three years of purchase/construction.
The deposit scheme for unutilised gains
If the capital gains are not used to purchase the new asset within one year before the date of transfer of the original asset, or are not utilised for its purchase or construction before the assessee files the return of income under Section 263, Section 82(2) requires the unutilised amount to be deposited in a specified bank or institution under the scheme notified by the Central Government. The deposit must be made before filing the return and not later than the due date for filing the return under Section 263(1), and proof of deposit must be submitted along with the return.
Section 82(3) treats the amount already utilised for the new asset, plus the amount deposited, as the cost of the new asset (subject to the ₹10 crore cap in Section 82(7)).
If the deposited amount is not fully utilised within the time limits in Section 82(1), Section 82(4) taxes the unutilised balance under Section 67 as income of the year the three-year period from the original transfer expires, and the assessee can withdraw the unutilised amount as per the deposit scheme.
Option to buy two houses
Section 82(5) allows the assessee, if the capital gains do not exceed ₹2 crore, to opt to purchase or construct two residential houses in India instead of one - in which case references to "one residential house" and "new asset" are read as "two residential houses." Section 82(6) restricts this two-house option to being exercised only once - if used in a tax year, it cannot be exercised again in that year or any other tax year.
Caps on cost of new asset and on capital gains
| Cap | Effect |
|---|---|
| Cost of the new asset exceeds ₹10 crore | The amount exceeding ₹10 crore is ignored for Section 82(1) (Section 82(7)) |
| Capital gains on the original asset exceed ₹10 crore | The amount exceeding ₹10 crore is ignored for Section 82(2) (Section 82(8)) |
Step-by-step flow for applying Section 82
- 1
Is the assessee an individual or HUF with long-term capital gains from a residential house whose income is chargeable under 'Income from house property'?
- No: Section 82 does not apply.
- Yes: Go to the next step.
- 2
Was one residential house in India purchased within one year before or two years after the transfer, or constructed within three years after it?
If the gain does not exceed two crore rupees, the assessee may opt (once only) for two residential houses (Section 82(5) and (6)).
- 3
Is any part of the gain unutilised before filing the return?
Deposit the unutilised amount in the notified scheme before filing the return and not later than the due date under Section 263(1), and attach proof. Amount utilised plus deposit is deemed the cost of the new asset.
- 4
Compare the capital gain with the cost of the new asset
Cost above ₹10 crore is ignored (Section 82(7)).
- Gain exceeds cost: Excess is charged under Section 67.
- Gain equal to or less than cost: No capital gain is charged.
- 5
After the claim
Any deposit not used within the period is taxed in the year in which three years from the original transfer expire. If the new house is sold within three years, its cost is nil or reduced by the gain.
Practical checklist
Do
- Confirm the original property was a long-term residential house and record transfer date and gain.
- Check the one-year-before/two-year-after purchase or three-year-after construction window; deposit unused gain by the applicable return deadline.
- If choosing two new houses, verify gain does not exceed ₹2 crore and that this lifetime option was not previously used.
Avoid
- Do not apply the two-house option when capital gain exceeds ₹2 crore.
- Do not overlook the ₹10 crore limits on replacement cost and amount deposited.
Illustrative example
Worked example: reinvesting in a house under construction
Hypothetical facts (illustration only, not a real taxpayer): Mr. Kulkarni sells a residential flat and has long-term capital gains of ₹1,50,00,000. He starts constructing a new house in India. By the time he files his return he has spent ₹70,00,000 on construction, and before the due date he deposits ₹50,00,000 in the notified scheme. Within three years of the sale he uses only ₹40,00,000 of the deposit.
Deemed cost of new asset
₹70,00,000 utilised + ₹50,00,000 deposited = ₹1,20,00,000 (Section 82(3)).
Gain charged in the year of sale
Gain ₹1,50,00,000 exceeds cost ₹1,20,00,000, so ₹30,00,000 is charged under Section 67.
Unused deposit
₹50,00,000 − ₹40,00,000 = ₹10,00,000 not utilised; it is charged under Section 67 in the tax year in which three years from the sale expire, and he may withdraw it under the scheme.
Sale of the new house within three years
Because the gain exceeded the cost, the cost of the new house would be nil for computing the gain on such a sale.
Outcome
- ₹30,00,000 is taxed in the year of sale and ₹10,00,000 in the year the three-year period ends; ₹1,10,00,000 of the gain is finally relieved.
- As the gain is under two crore rupees, he could instead have exercised the one-time option to invest in two houses.
Glossary
- Original asset
- The long-term residential house being transferred.
- New asset
- The qualifying replacement residential house in India, or two houses under the limited option.
Frequently asked questions
What is the time window to buy or build a new house to claim this exemption?
Purchase within one year before or two years after the transfer of the original house, or construction within three years after the transfer, per Section 82(1)(b).
Can I buy two houses instead of one and still claim the exemption?
Yes, but only if the capital gains do not exceed ₹2 crore, and this two-house option can be exercised only once in a lifetime (not repeated in the same or any other tax year), per Section 82(5) and (6).
What if I don't reinvest the gains before filing my return?
You must deposit the unutilised amount in a specified bank/institution under the notified Capital Gains Account Scheme before the return filing due date, and submit proof of deposit with the return, per Section 82(2).
Is there a monetary cap on this exemption for very large transactions?
Yes - amounts of the new asset's cost above ₹10 crore, and capital gains above ₹10 crore, are excluded from the exemption computation under Section 82(7) and (8).
Need help applying this provision to your situation?
Get expert help claiming your residential house capital gains exemptionLast updated 10 October 2026