By Arosh John | Founder – John Real Estate (MahaRERA Reg. No. A51700001835) | Editor-in-Chief – Thane Real Estate News
The Big Question Investors Ask
If you sell a commercial unit — say an office, shop, or showroom — can you buy another commercial property with the proceeds and avoid capital gains tax?
As per the Income Tax Act, the answer is clear: Reinvestment into another commercial property is certainly allowed, but it does not give you any capital gains exemption. Unless you use specific provisions like Section 54EC bonds, the gain remains taxable.
What the Law Says
- Section 54: Available only when you sell a long-term residential house and reinvest in another residential house. Commercial property does not qualify.
- Section 54F: Applies when you sell any long-term asset other than a residential house and reinvest in one residential house. Again, commercial-to-commercial reinvestment doesn’t qualify.
- Section 54EC Bonds: The practical option for commercial sellers. If you sell long-term land or building (residential or commercial), you may reinvest the capital gains (not entire proceeds) into government-specified bonds (NHAI, REC, PFC, IRFC) within 6 months.
- Limit: ₹50 lakh
- Lock-in: 5 years
- Interest: Taxable
Special Caution: Depreciated Assets
If your commercial property was part of your business books and you claimed depreciation, Section 50 applies. The gain is treated as short-term, even if held for years. Short-term gains are taxed at slab rates, and exemptions under 54/54F/54EC generally don’t apply.
Current Capital Gains Tax Rates
- For transfers on or after 23 July 2024, long-term capital gains (LTCG) on property are taxed at 12.5% without indexation.
- In many cases, taxpayers may still choose the older 20% with indexation regime. Confirm which applies to your case when filing.
- Short-term capital gains (STCG): Taxed at normal slab rates.
Practical Takeaways
- Commercial → commercial reinvestment: Allowed, but no exemption.
- Commercial land/building (long-term): Only 54EC bonds can save tax (₹50 lakh cap, 6-month window, 5-year lock-in).
- Residential route: If you’re open to switching, Section 54F allows exemption when investing in a residential house.
- Business-use with depreciation: Gains fall under Section 50, taxed as short-term; exemptions generally unavailable.
Investor’s Insight
Many commercial property owners assume they get the same rollover reliefs as residential sellers. The truth is, under the Income Tax Act, the only shield is 54EC bonds — and those come with strict limits and conditions. For high-value offices, shops, or warehouses, advance planning with a Chartered Accountant is essential to manage tax outflow smartly.
About the Author
Arosh John is a MahaRERA-registered real estate consultant (A51700001835) and Editor-in-Chief of Thane Real Estate News. With over a decade of expertise in the Thane–MMR market, he specialises in residential, commercial, luxury villas, and warehousing. Through TREN, he aims to simplify real-estate and investment decisions with data-driven, compliance-first insights.
Disclaimer
This article is for informational purposes only. Tax treatment varies based on holding period, depreciation claimed, residency (resident vs NRI), and date of transfer. Readers should consult a qualified Chartered Accountant before acting, including to verify applicability of Section 54EC, indexation options, or Section 50 implications in their specific case.
