Section 54F vs Section 86: Has Anything Really Changed?

Summary: The article compares Section 54F of the Income-tax Act, 1961 with Section 86 of the Income Tax Bill, 2025 and concludes that there is no substantive change in the exemption available on long-term capital gains. The exemption continues to apply to Individuals and Hindu Undivided Families (HUFs) transferring a long-term capital asset other than a residential house and investing the net consideration in one residential house in India, subject to the prescribed conditions. The purchase period, construction period, exemption formula, Capital Gains Deposit Scheme, restrictions relating to ownership of multiple houses, withdrawal of exemption on specified events, and the Rs. 10 crore cap remain unchanged. The Bill primarily introduces simplified legislative language, better structural arrangement, updated cross-references, and separate sub-sections for monetary limits and other provisions to improve readability. Accordingly, the existing computation methodology, documentation requirements, and compliance approach under Section 54F continue to remain relevant under Section 86.

Section 54F of Income-tax Act, 1961 vs Section 86 of Income Tax Bill, 2025 – Has Anything Really Changed?

Introduction

The Income Tax Bill, 2025 seeks to replace the Income-tax Act, 1961 with a more concise, logically arranged, and reader-friendly legislation. While the Bill renumbers several provisions, one of the frequently referred capital gains exemption provisions—Section 54F—has now been renumbered as Section 86.

This has led many taxpayers and professionals to question whether the conditions for claiming exemption have changed.

A comparative reading of Section 54F of the Income-tax Act, 1961 and Section 86 of the Income Tax Bill, 2025 reveals that there is no significant substantive amendment in the exemption provisions. The changes are primarily legislative drafting improvements and structural reorganisation.

Objective of the Provision

The purpose of this exemption continues to be the same under both laws.

Where an Individual or Hindu Undivided Family (HUF) earns a long-term capital gain from the transfer of any long-term capital asset other than a residential house, the capital gain is exempt to the extent the net consideration is invested in one residential house situated in India, subject to prescribed conditions.

Comparative Analysis of Section 54F of Income-tax Act, 1961 with Section 86 of Income Tax Bill, 2025

Important Drafting Changes

Although the substantive provisions remain unchanged, a few drafting changes deserve attention.

1. Simpler Legislative Language

The Income Tax Bill, 2025 adopts shorter sentences and better organised sub-sections. The language is easier to understand without changing the legal effect.

2. Better Structural Arrangement

Section 86 separates different aspects of the exemption into independent sub-sections, such as:

• Conditions for exemption
• Capital Gains Deposit Scheme
• Treatment of unutilised deposits
• Withdrawal of exemption
• Monetary limits
• Definition of net consideration

This improves readability compared to the existing Section 54F.

3. Updated Cross References

The Bill naturally replaces references to provisions of the 1961 Act with corresponding provisions in the new legislation.

For example:

• Section 45 (Capital Gains charging provision) → Section 67
• Section 139 (Return of Income) → Section 263

These changes are purely consequential and do not alter the computation or eligibility of exemption.

4. Separate Recognition of ₹10 Crore Limits

The Income-tax Act, 1961 incorporates the ₹10 crore restriction through provisos.

The Income Tax Bill, 2025 provides independent sub-sections dealing with:

• Maximum cost of new asset to be considered (₹10 crore)
• Maximum net consideration eligible for deposit under the Capital Gains Deposit Scheme (₹10 crore)

This improves legislative clarity without changing the monetary restriction.

What Has Not Changed?

Professionals can take comfort that the following continue without modification:

• Eligibility restricted to Individuals and HUFs.
• Original asset should not be a residential house.
• Investment must be made in one residential house situated in India.
• Exemption continues to depend upon utilisation of the net consideration.
• Capital Gains Deposit Scheme remains available where investment is pending.
• Ownership of more than one residential house continues to restrict eligibility.
• Purchase or construction of another residential house within the specified period results in withdrawal of exemption.
• Transfer of the new residential house within the prescribed period results in taxation of the earlier exempt capital gain.
• ₹10 crore ceiling continues to apply.

Practical Impact for Tax Professionals

From a compliance perspective, tax practitioners are not required to modify their advisory approach merely because Section 54F has become Section 86.

The computation methodology, documentation requirements, planning strategies, and litigation principles developed under Section 54F are expected to remain relevant unless future amendments specifically alter the provision.

The principal benefit of the new legislation lies in its improved drafting style rather than any substantive change in tax policy.

Conclusion

The comparison between Section 54F of the Income-tax Act, 1961 and Section 86 of the Income Tax Bill, 2025 demonstrates that the Government has largely retained the existing exemption framework while presenting it in a more organised and simplified format.

Accordingly, taxpayers planning to claim exemption on long-term capital gains through investment in a residential house can continue to rely on the same fundamental principles that existed under Section 54F.

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For tax professionals, the transition from Section 54F to Section 86 is primarily a matter of renumbering and simplified drafting, rather than a substantive legislative reform.

Authors Note: The views expressed are personal and based on the provisions of the Income-tax Act, 1961 as amended up to date.