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    Home»Mutual Funds»Selling Mutual Funds? Here’s How You Can Save Capital Gains Tax Under Section 54F
    Mutual Funds

    Selling Mutual Funds? Here’s How You Can Save Capital Gains Tax Under Section 54F

    February 23, 2026


    Selling Mutual Funds? Here’s How You Can Save Capital Gains Tax Under Section 54F

    Personal Finance


    Published: Tuesday, February 17, 2026, 10:53 [IST]

    Section 54F of the Income Tax Act offers a valuable tax-saving opportunity for individuals who earn long-term capital gains from selling assets such as shares, mutual funds, or any property other than a residential house. Normally, these gains are subject to tax. However, this provision allows you to avoid paying capital gains tax if the sale proceeds are reinvested in a residential property.

    Mutual Funds

    To claim this benefit, the capital gains amount or ideally the entire sale proceeds must be reinvested in a residential house within the prescribed time frame. You can purchase a property up to one year before the sale or within two years after it. If you choose to construct a house, the construction must be completed within three years from the date of sale.

    For example, if you sell mutual funds worth Rs 25 lakh and reinvest the full amount into a residential property, you can claim complete exemption from capital gains tax. If only a portion of the proceeds is invested, the exemption will be granted on a proportionate basis. By complying with these rules, investors can legally reduce their tax burden while making a sound long-term financial move.

    Eligibility Criteria For Section 54F Exemption

    To avail of this tax benefit, the following conditions must be met to ensure the exemption is used specifically for genuine residential investment.

    Who Can Claim the Benefit

    Only Individuals and Hindu Undivided Families (HUFs) are eligible. Companies, partnership firms, and other entities cannot claim this exemption.

    Nature of Investment

    The reinvestment must be made in a residential property located within India. Properties purchased outside India do not qualify.

    Existing Property Ownership

    At the time of selling the original asset, the taxpayer should not own more than one residential house (excluding the new property being acquired). Owning multiple homes makes you ineligible for this benefit.

    Investment Time Limit

    The law provides flexibility in timelines:

    • Purchase a house within one year before or two years after the sale, or
    • Construct a house within three years from the date of sale

    Extent of Investment

    For full tax exemption, the entire net sale proceeds must be invested in the new residential property. If only part of the amount is invested, the exemption will apply proportionately, and tax will be levied on the remaining portion.

    Key Conditions for Saving LTCG on Shares and Mutual Funds

    • The asset sold must qualify as a long-term capital asset (held for more than 12 months in the case of listed shares or equity mutual funds).
    • The full net sale consideration, not just the profit, must be reinvested in the residential property to claim a complete exemption.
    • The property must be a residential unit located in India.
    • The purchase must take place within one year before or two years after the sale, or construction must be completed within three years.
    • The new house should not be sold within three years; otherwise, the exemption will be revoked.
    • At the time of sale, you should not own more than one residential house apart from the new one.
    • If the funds are not used immediately, they must be deposited in a Capital Gains Account Scheme (CGAS) before the due date of filing your income tax return.

    By carefully planning your reinvestment, Section 54F can help you convert taxable gains into a valuable long-term asset while remaining fully compliant with tax regulations.

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    Story first published: Tuesday, February 17, 2026, 10:53 [IST]

    Other articles published on Feb 17, 2026





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