Capital Gain Bonds After Selling a Flat: How Section 85 (Old Section 54EC) Works
Sold land or a flat at a long-term gain? Investing up to Rs 50 lakh in specified bonds within six months can save tax. The conditions, straight from the Act.
When you sell a flat or land you've held long term, the gain is taxable. One way to reduce that tax without buying another home is to invest the gain in specified bonds. Under the old Income-tax Act, 1961 this was section 54EC. Under the Income-tax Act, 2025, which applies from tax year 2026-27, it's section 85.
The conditions, from the Act
| Condition | Section 85 |
|---|---|
| What you sold | Land or building, or both, giving long-term capital gains |
| Deadline to invest | Within six months after the date of transfer |
| Maximum investment | Rs 50 lakh, across the tax year of transfer and the following tax year |
| Eligible bonds | Bonds redeemable after five years, issued on or after 1 April 2018 by NHAI or REC, or other bonds the Central Government notifies |
| Exemption | Gain exempt to the extent invested; if you invest the whole gain, none of it is taxed |
Traps to avoid
- Selling or redeeming early. If the bonds are transferred or converted into money within five years, the exempt gain becomes taxable as long-term capital gains in that year.
- Taking a loan against the bonds. The Act treats a loan or advance on the security of the bonds as converting them into money on that date.
- Double-dipping. The same investment can't also be claimed as a deduction under section 123.
Six months from the date of transfer, Rs 50 lakh, five years. Those three numbers decide whether the exemption works for you.
A simple illustration
Illustrative only. You sell a flat and your long-term capital gain is Rs 70 lakh. You invest Rs 50 lakh in eligible bonds within six months. Rs 50 lakh of the gain is exempt; Rs 20 lakh is taxable, unless another exemption applies to it.
Combining with other exemptions
You can use bonds for part of the gain and another exemption, such as reinvesting in a house under section 82, for the rest, if you meet each section's conditions. Plan this with your CA before the sale.
For NRI sellers
Buyers must deduct TDS when buying from an NRI, often on the whole sale price. If you plan to invest in bonds, consider applying for a lower TDS certificate before the sale. See our guide to lower TDS certificates for NRIs.
Frequently asked questions
Does the six-month limit run from the agreement or the registration?
The Act says six months after the date of transfer. When a transfer is complete can be fact-specific, so confirm with your CA.
Is the interest on these bonds tax-free?
The Act exempts the capital gain, not the bond interest. Check the bond's terms and your CA's advice on interest taxation.
Selling your Mumbai flat? We coordinate with your CA so deadlines aren't missed. Book a video call.
Sources
General information, not tax advice. Sales before 1 April 2026 fall under the Income-tax Act, 1961. Speak to a chartered accountant before acting.
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