Capital gains exemption under sec 54

After indexation amount should taken for calculation of LTCG, Please refer Indexation sec 48 of Income tax act. Indexation is basically improvement in the value of asset over long period of retention.

then what is the logic in calculation of capital gains before indexation and also after indexation in both itr2 and itr3

For Section 54, the exemption amount equals the LTCG you compute , not the full sale consideration. So the method (with or without indexation) you choose affects both your taxable gain and the amount you need to reinvest for FULL exemption.

For property bought before July 23, 2024:

The Finance Act 2024 gave a transitional choice:

- Option A: 20% LTCG with indexation (old method)

- Option B: 12.5% LTCG without indexation (new method)

You pick whichever gives a lower tax output. The ITR-2 utility computes both.

For Section 54, the exemption works as follows:

- If you reinvest an amount equal to or greater than the LTCG under your chosen method, the ENTIRE gain is exempt.

- If you reinvest less than the full LTCG, the exemption is limited to what you reinvested.

So if Option A gives you LTCG of Rs. 20L and Option B gives Rs. 25L, choose Option A. Your full Section 54 exemption requires reinvesting Rs. 20L (not Rs. 25L).

Note: Section 54 exemption is on the CAPITAL GAIN, not the net sale price. You do not have to reinvest the entire sale price.

For the full indexation option comparison and Section 54 conditions for AY 2026-27, this [capital gains tax rates guide](https://taxgarden.in/blog/capital-gains-tax-rates-asset-class-ready-reckoner-india-ay-2026-27) has the CII table and exemption rules together.

For Section 54, the exemption amount equals the LTCG you compute , not the full sale consideration. So the method (with or without indexation) you choose affects both your taxable gain and the amount you need to reinvest for FULL exemption.

For property bought before July 23, 2024:

The Finance Act 2024 gave a transitional choice:

- Option A: 20% LTCG with indexation (old method)

- Option B: 12.5% LTCG without indexation (new method)

You pick whichever gives a lower tax output. The ITR-2 utility computes both.

For Section 54, the exemption works as follows:

- If you reinvest an amount equal to or greater than the LTCG under your chosen method, the ENTIRE gain is exempt.

- If you reinvest less than the full LTCG, the exemption is limited to what you reinvested.

So if Option A gives you LTCG of Rs. 20L and Option B gives Rs. 25L, choose Option A. Your full Section 54 exemption requires reinvesting Rs. 20L (not Rs. 25L).

Note: Section 54 exemption is on the CAPITAL GAIN, not the net sale price. You do not have to reinvest the entire sale price.

For the full indexation option comparison and Section 54 conditions for AY 2026-27, this [capital gains tax rates guide](https://taxgarden.in/blog/capital-gains-tax-rates-asset-class-ready-reckoner-india-ay-2026-27) has the CII table and exemption rules together.