When you sell a capital asset such as a house, land, investment, or other property, the profit from the sale may be treated as capital gains and can become taxable.

However, the Income-tax Act, 2025 provides certain exemptions from capital gains tax. These exemptions are available when the taxpayer meets specific conditions and reinvests the capital gains or sale proceeds in permitted assets.

Sections 82 to 88 cover different types of capital gains exemptions. The rules are different for each section, so taxpayers should understand the conditions before claiming an exemption.

What Is a Capital Gains Exemption?

A capital gains exemption allows a taxpayer to reduce or avoid tax on eligible capital gains when the amount is reinvested in a specified asset or used for a permitted purpose.

The exemption is not automatic. The taxpayer must meet the conditions given under the relevant section.

These conditions may relate to:

• Type of asset sold
• Type of new asset purchased
• Time limit for investment
• Amount invested
• Holding period of the new asset
• Use of the Capital Gains Account Scheme, where applicable

Capital Gains Exemptions Under Sections 82 to 88

The Income-tax Act, 2025 provides different exemptions for different situations.

Section 82: Investment in a Residential House

Section 82 applies to eligible individuals and HUFs when long-term capital gains arise from the transfer of a residential house property.

The exemption may be available when the capital gain is invested in another residential house property in India.

The investment can generally be made:

• Within one year before the date of transfer, or
• Within two years after the date of transfer for purchase
• Within three years after the date of transfer for construction

If the amount cannot be invested before the return filing deadline, the Capital Gains Account Scheme may be relevant, subject to the applicable conditions.

The exemption can be affected if the new property is transferred before the required holding period or if the deposited amount is not used within the prescribed time.

Section 83: Investment in Agricultural Land

Section 83 provides relief in certain cases where capital gains arise from the transfer of agricultural land.

The exemption is available to eligible individuals and HUFs when the taxpayer purchases new agricultural land within the prescribed period.

The new agricultural land must meet the conditions specified under the law.

If the taxpayer does not use the deposited amount within the prescribed period or transfers the new agricultural land within the required period, the exemption may be withdrawn.

Section 84: Compulsory Acquisition of Industrial Property

Section 84 applies where land or a building forming part of an industrial undertaking is transferred because of compulsory acquisition.

The exemption can apply to eligible capital gains when the taxpayer invests in another qualifying land or building within the prescribed period.

This provision is intended for situations where an industrial property is compulsorily acquired and the taxpayer reinvests in a replacement asset.

The new asset must satisfy the conditions prescribed under the section.

Section 85: Investment in Specified Bonds

Section 85 provides an exemption in certain cases where long-term capital gains arise from the transfer of land or a building.

The taxpayer can claim the exemption by investing the eligible capital gains in specified bonds within the prescribed time.

The investment must meet the conditions given under the law, including the required holding period.

If the specified bonds are transferred or converted before the required period, the exemption may be withdrawn.

Taxpayers should therefore check the eligibility of the bonds and the applicable conditions before making the investment.

Section 86: Investment in a Residential House

Section 86 applies to long-term capital gains arising from the transfer of a long-term capital asset other than a residential house.

An individual or HUF may claim exemption when the required sale consideration is invested in a residential house in India, subject to the conditions of the section.

The general time limits are:

• Purchase within one year before or two years after the transfer
• Construction within three years after the transfer

The exemption can be affected if the taxpayer does not meet the investment conditions or transfers the new house within the prescribed period.

This section is commonly relevant when a taxpayer sells a long-term asset and uses the sale proceeds to purchase or construct a residential house.

Section 87: Reinvestment for Industrial Undertakings

Section 87 provides relief in certain cases involving assets used by industrial undertakings.

It may apply where qualifying assets such as plant, machinery, land, or buildings are transferred and the taxpayer makes the prescribed investment in new assets.

The provision can cover situations involving the shifting of an industrial undertaking from an urban area to another qualifying location.

The taxpayer must make the required investment within the prescribed period and satisfy the other conditions of the section.

Section 88: Industrial Undertaking Shifted to an SEZ

Section 88 provides another exemption for certain capital gains related to industrial undertakings.

The provision applies where qualifying assets are transferred and the industrial undertaking is shifted to a Special Economic Zone (SEZ), subject to the conditions provided under the law.

The required investment may include:

• New plant or machinery
• Purchase or construction of a building
• Other qualifying assets
• Expenses connected with shifting the undertaking

The prescribed investment period and other conditions must be followed to claim the exemption.

Capital Gains Account Scheme

The Capital Gains Account Scheme (CGAS) can be useful when a taxpayer is eligible for a capital gains exemption but has not yet used the amount for the required investment before the applicable ITR filing deadline.

Instead of immediately using the amount for the new asset, the taxpayer may be able to deposit it under the Capital Gains Account Scheme, subject to the relevant provisions.

The deposited amount must then be used within the prescribed period.

If the amount remains unused after the permitted period, the exemption may be affected and the unused amount may become taxable according to the applicable rules.

When Can a Capital Gains Exemption Be Withdrawn?

A capital gains exemption is subject to conditions even after it has been claimed.

The exemption may be withdrawn in certain situations, such as:

• The new asset is sold before the required holding period.
• The amount deposited under the Capital Gains Account Scheme is not used within the permitted period.
• The taxpayer fails to make the required investment.
• The investment does not satisfy the conditions of the relevant section.
• The asset purchased does not qualify under the applicable provision.

Therefore, taxpayers should keep all documents related to the original sale and new investment.

Important Points Before Claiming an Exemption

Before claiming a capital gains exemption, check the following:

1. Identify the Asset Sold

First determine whether the asset sold is a residential house, agricultural land, business asset, land, building, or another capital asset.

2. Check the Type of Capital Gain

Some exemptions apply only to long-term capital gains, while certain provisions can cover both long-term and short-term capital gains.

3. Check the Eligible Investment

Every exemption has its own rules regarding where the capital gain or sale proceeds must be invested.

4. Follow the Time Limit

Investment must be made within the time limit prescribed under the relevant section.

5. Keep Proper Documents

Keep documents such as:

• Sale deed
• Purchase documents
• Construction documents
• Investment records
• Bank statements
• Capital Gains Account Scheme documents
• Other proof of eligible investment

These records can support the exemption claimed in the ITR.

Are Capital Gains Exemptions Automatic?

No. Simply investing money after selling an asset does not automatically make the capital gain exempt.

The taxpayer must satisfy the conditions of the relevant section.

The type of original asset, type of new investment, investment period, holding period, and other requirements can all affect the exemption.

Therefore, taxpayers should check the applicable provision before making a claim.

Conclusion

The Income-tax Act, 2025 provides several ways to claim relief from capital gains tax when eligible gains are reinvested in specified assets or used for prescribed purposes.

Sections 82 to 88 cover different situations, including investment in residential property, agricultural land, specified bonds, and assets connected with industrial undertakings.

Each section has its own eligibility conditions and time limits. A taxpayer should therefore identify the correct section before claiming an exemption.

Proper planning and maintaining complete records can help ensure that the capital gains exemption is claimed correctly in the Income Tax Return.

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