TL;DR
If you sell a residential property in FY 2025-26, profits held over 24 months are taxed at 12.5%. To exempt these gains under Section 54, you must reinvest in a new home by the tax filing deadline of July 31, 2026.If you cannot meet this deadline, you can protect your exemption by depositing the funds into a Capital Gains Account Scheme (CGAS).
Key Takeaways:
- Timeline: Deposits must be made by July 31, 2026, to extend your reinvestment window to 2 years for buying or 3 years for construction.
- Account Types: Use Type A for liquid, phased withdrawals or Type B for lump-sum term deposits.
- Modern Access: Recent 2025 updates allow deposits via UPI and net banking.
- Limits: Exemptions are capped at Rs 10 crore and are available only to resident taxpayers.
Failure to utilize the funds within the allowed period makes the remaining balance taxable.
Selling a home is a significant financial step. First, you might wonder, “Did I get the right price?” Next, you’ll likely think about taxes and possible exemptions. Managing taxes is essential for protecting your wealth and financial planning your finances well.
Let’s deep-dive into a scenario: you have sold your property in the 2025-26 financial year.
What happens when you sell a property?
If you held your property for more than 24 months, the profit from the sale is treated as long-term capital gains. Under the new tax regime applicable from FY 2024–25, these gains are taxed at 12.5 percent without surcharge for gains below Rs 50 lakh.
You can lower or eliminate this tax by using one of the following exemptions:
Section 54: Reinvestment in resident property: You can reinvest the capital gains into another home.
- Buy within 2 years.
- Complete construction within 3 years.
Section 54EC: Capital Gains Bonds: You can invest in bonds issued by REC or NHAI within 6 months of sale.
- The maximum investment allowed is Rs. 50 lacs.
- Lock-in period: 5 Years.
Section 54 offers a higher exemption limit and is generally more beneficial. But it comes with one challenge: the reinvestment must be completed before filing your income tax return, usually by July 31 of the following year.
If you cannot complete the purchase or construction of a property before this deadline, the gains become taxable. It is a common situation, and it is precisely why the Capital Gains Account Scheme exists.
What are the Pros and Cons of available tax exemptions?
Both options have their own pros and cons.
- Option 1 offers a bigger tax benefit. You can claim exemptions up to Rs 10 crores under Option 1, while under Option 2 the limit is Rs 50 lakhs.
- Option 2 is better for those who do not plan to buy another home, even though the money will be tied up in bonds for five years.
Most people may choose Option 1, but there is a challenge. The law says you must buy a new property within two years of the sale. However, you also need to purchase before your income tax return is due, usually by July 31 of the following year.
For example, if you sell your property in 2025-26, you must report the capital gains by July 31, 2026, when you file your return. If you do not reinvest by this date, you will have to pay tax on the gains.
What is a Capital Gains Account?
Let’s first understand what a Capital Gains Account is. It is a specific deposit account offered by certain banks for investing unused long-term capital gains. There are two types of accounts provided under CGAS.
Type A (Savings-type account): Useful for phased withdrawals. Offers liquidity similar to a savings account.
Type B ( Term Deposit ): Works like a fixed deposit. Suitable for lump-sum usage.
- Maximum tenure: 2 years for purchase.
- Maximum tenure: 3 years for construction
Interest is taxable just like regular bank interest.
How CGAS Helps You Save Tax?
If you want to save tax on the long-term capital gains by using the reinvesting route ( Section 54), which you made by selling your house in 2025-26, the rules say that you have to take the reinvestment decision before you file taxes for the year, i.e., by 31st July 2026. But if you fail to do that, you can defer it by depositing the money into the CGAS account.
The rule has been part of the law since 1988 and was recently updated in 2025. The new update has made the process easier by allowing deposits through UPI, NEFT, RTGS, IMPS, net banking, and cards. From April 1, 2027, e-statements and online closure will also be possible.
Once the deposit is made, you get the full extended timeline allowed under law:
- Up to 2 years from the sale for buying, or
- Up to 3 years for construction.
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How to Use CGAS After Selling Property in FY 2025-26?
If you sold your residential property anytime between April 1, 2025, and March 31, 2026, and will not be able to reinvest the capital gains by July 31, 2026, here is what you should do:
Step 1: Calculate your capital gains. Work out the taxable long-term capital gain from the sale, taking into account the acquisition cost, improvement costs, and any exemptions you may be eligible for.
Step 2: Open a CGAS account before July 31, 2026. Approach an authorised public sector bank or any other banking company notified by the government to open a Capital Gains Account. You can choose between Type A (a savings-type account with high liquidity, suitable if you plan to use the funds in stages) or Type B (a term-deposit account, ideal for lump-sum parking).
Step 3: Deposit the unutilized capital gains. Transfer the full amount of capital gains (or net sale consideration under Section 54F) into the CGAS account before July 31, 2026. You can now use modern payment methods, including UPI and net banking, and the effective date for claiming exemption is the date the bank receives the payment.
Step 4: Claim the exemption in your ITR for AY 2026-27. When you file your income tax return by July 31, 2026, report the CGAS deposit details and claim the exemption under Section 54 or 54F, as applicable.
Step 5: Use the funds within the allowed timeline
Withdraw and use the money only for the purchase or construction of the residential property within the allowed 2 or 3 years.
Step 6: Maintain proper documentation: Money can be withdrawn from CGAS only to purchase or construct a new residential property, and you must maintain documentation to prove its utilisation. Keep proofs such as builder receipts, registry details, invoices, and withdrawal forms.
What If You Don’t Use the Entire Amount?
Any unutilized amount at the end of the permitted 2-year or 3-year period becomes taxable in that year.
Example:
If you deposit Rs 50 lakh in July 2026 but use only Rs 35 lakh, the unused Rs 15 lakh becomes taxable in the year the timeline expires.
Important points to remember
Here are some important caveats to keep in mind
- Section 54 exemption is capped at Rs 10 crore for all transactions from FY 2022–23 onwards.
- You cannot claim exemption beyond this limit.
- CGAS accounts can be opened only by resident taxpayers. NRIs need alternative options.
- Only notified banks can open CGAS accounts. Private banks are usually not authorised.
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Conclusion
If you sold property in FY 2025-26 and have not yet found your next home or completed construction by the July 31, 2026, return filing deadline, do not let the opportunity for capital gains exemption slip away. Opening a CGAS account is a straightforward, government-backed mechanism that preserves your tax benefits while giving you breathing room to make the right reinvestment decision.
With the recent digital payment and e-statement enhancements, the process is now more straightforward and more convenient than ever. Consult your tax advisor early, calculate your gains accurately, and ensure your CGAS deposit is made well before the deadline to safeguard your exemption and keep more of your hard-earned sale proceeds working for you.
