Various Exemptions Available From Capital Gains Under Income Tax Act, 2025
Capital gains arising from the transfer of assets may result in a significant tax liability. However, the Income-tax Act, 2025, as amended by the Finance Act, 2026, provides several exemptions where the capital gains are reinvested in specified assets or used for prescribed purposes.
The Income Tax Department has published a consolidated reference covering various exemptions available in respect of capital gains under Sections 82 to 88. The document is intended to provide quick access to the provisions and advises taxpayers to verify the applicable provisions from the relevant Acts, Rules and Notifications.
Capital Gains Exemptions Under Sections 82 to 88
The exemptions differ depending on the nature of the original asset, the taxpayer, the type of capital gain and the asset in which the gains are reinvested.
Section 82 - Investment in Residential House Property
Section 82 provides an exemption for eligible Individuals and Hindu Undivided Families (HUFs) in respect of long-term capital gains arising from the transfer of a residential house property.
The exemption is available where the capital gains are invested in a residential house property in India. The amount of exemption is the lower of the long-term capital gain or the amount invested in the new house, including the amount deposited under the Capital Gains Account Scheme (CGAS).
The investment timeline is:
- Purchase: Within 1 year before or 2 years after the date of transfer.
- Construction: Within 3 years from the date of transfer.
The amount deposited under CGAS must generally be made on or before the due date for filing the return of income.
The exemption can be withdrawn if the CGAS amount is not utilised within the prescribed period or the new house is transferred within three years.
Section 83 - Reinvestment in Agricultural Land
Section 83 applies to Individuals and HUFs where capital gains arise from the transfer of agricultural land.
The exemption covers long-term or short-term capital gains where the taxpayer invests in new agricultural land. The exemption is restricted to the lower of the capital gain or the amount invested in the new agricultural land, including the amount deposited under CGAS.
The new agricultural land is required to be acquired within two years after the transfer of the original asset.
If the CGAS amount remains unutilised within the prescribed period or the new agricultural land is transferred within three years, the exemption may be withdrawn.
Section 84 - Compulsory Acquisition of Industrial Undertaking
Section 84 provides relief where land or a building forming part of an industrial undertaking is transferred through compulsory acquisition.
The exemption is available to any assessee and covers long-term or short-term capital gains. The amount of exemption is the lower of the capital gains or the investment in new land or building, including the amount deposited under CGAS.
The replacement land or building must be acquired within three years after the date of compulsory acquisition.
Section 85 - Investment in Specified Bonds
Under Section 85, long-term capital gains arising from the transfer of land or building or both may qualify for exemption where the gains are invested in specified bonds.
The document identifies bonds issued by:
- National Highway Authority of India (NHAI)
- Rural Electrification Corporation Limited (REC)
- Housing and Urban Development Corporation Limited (HUDCO)
- Indian Renewable Energy Development Agency (IREDA)
- Any other bond notified by the Central Government
The exemption is the lower of the long-term capital gain, the amount invested in specified bonds, or ₹50 lakh. The investment must be made within six months of the transfer.
The exemption may be withdrawn where the bonds are transferred or converted within five years.
Section 86 - Investment in Residential House Property
Section 86 provides exemption for any assessee in respect of long-term capital gains from any capital asset other than a residential house property.
Where the net consideration is invested in a new residential house property located in India, the entire capital gain may be exempt. If only part of the consideration is invested, the exemption is available proportionately.
The purchase or construction timeline follows the specified period of one year before or two years after the transfer for purchase, and three years from the transfer for construction.
The document also lists acquisition of a second house, non-utilisation of CGAS deposits and transfer of the new house within three years among circumstances that can result in withdrawal of the exemption.
Section 87 - Reinvestment in New Assets for Industrial Undertakings
Section 87 covers long-term or short-term capital gains arising from specified capital assets used for an industrial undertaking situated in an urban area.
The qualifying assets include plant, machinery, land or building, or rights in land or building used for the industrial undertaking. The exemption is linked to investment in new assets, expenses incurred on transfer or establishment and amounts deposited under the Capital Gains Account Scheme.
The specified investment may include acquiring new plant or machinery, purchasing or constructing a building, or shifting the original asset to a non-urban area. The investment period is within one year before or three years after the date of transfer.
Section 88 - Investment for Industrial Undertakings in SEZs
Section 88 provides another exemption for specified assets used for an industrial undertaking situated in an urban area.
The exemption covers long-term or short-term capital gains and is available where the taxpayer makes the prescribed investment in new plant or machinery, purchases or constructs a building, or shifts the original asset into an SEZ.
The investment period is within one year before or three years after the transfer of the original asset. The exemption may be withdrawn where the new asset is transferred within three years or the relevant deposit remains unutilised within the prescribed period.
Important ₹10 Crore Limitation
A key point highlighted in the document is that the cost of the new asset cannot exceed ₹10 crore for the relevant exemption. Further, where no investment is made in the new asset and the amount is instead deposited in the Capital Gains Account Scheme, the maximum amount considered for exemption is ₹10 crore. This provision has been stated as amended by the Finance Act, 2026.
What Taxpayers Should Keep in Mind
Capital gains exemption is not automatic merely because the taxpayer reinvests the proceeds. The exemption depends on meeting the specific conditions prescribed for the relevant section, including the nature of the original asset, eligible replacement asset, investment amount and applicable time limit.
Taxpayers should also carefully track CGAS deposits. Failure to utilise the deposited amount within the prescribed period can result in withdrawal of the exemption. Similar consequences may arise if the newly acquired asset is transferred before the specified holding period.
The Income Tax Department itself clarifies that the document is provided for information and quick access and is not intended to constitute a legal document. Taxpayers are advised to verify the provisions from the applicable Government Acts, Rules and Notifications.
Conclusion
The Income-tax Act, 2025 provides multiple routes for taxpayers to reduce or defer their capital gains tax liability through prescribed reinvestment. Sections 82 to 88 cover a range of situations, from purchasing a residential house and agricultural land to investing in specified bonds and replacing assets used by industrial undertakings.
For taxpayers planning a capital asset transfer, understanding the applicable exemption before completing the transaction can be important because each provision carries its own eligibility conditions, investment deadlines, limits and withdrawal rules.
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