Section 54GB

Section 54GB provides an exemption from Long-Term Capital Gains (LTCG) on the sale of a residential property (house or plot of land) when the net consideration is reinvested in equity shares of an eligible startup. It is one of the few provisions that directly links property capital gains to startup investment.

Who it applies to

• Individuals or HUFs selling a residential house or plot of land that qualifies as a long-term capital asset
• The gain must be reinvested in equity shares (not debt or preference shares) of an eligible startup
• The investor must hold more than 50% of the startup's share capital or voting power after the investment — making this most relevant for founders investing in their own company, or investors taking a majority stake
• The investment must be made before the return filing due date (or within 6 months, whichever is earlier)

What you get

• Full or proportionate exemption from LTCG on the residential property sale, applied to the amount reinvested
• The startup must use the investment proceeds to purchase assets within 1 year of the share subscription
• The provision is available for investments made up to 31 March 2027 (check the current extended date)

What most founders miss

The startup must be an eligible startup — not merely a DPIIT-recognised company. Eligible startup status requires separate IMB approval under Section 80-IAC. A founder planning to use this exemption must confirm IMB approval is in place before structuring the transaction.

The 50% shareholding requirement is strict. An individual who invests in a startup where they hold 30% post-investment cannot claim the exemption, even if all other conditions are met. This provision is structurally oriented toward founders reinvesting in their own majority-held company, not arms-length angel investment.

Clawback risk is real. If the startup transfers the assets purchased from the invested proceeds within 5 years, the LTCG exemption is reversed and becomes taxable in the year of transfer. The startup and investor must coordinate on asset holding plans.

As with all complex LTCG provisions, get a CA's view on the specific transaction structure before relying on this exemption.

See also

• Eligible Startup — the required legal status for the investee company
• Section 80-IAC — the provision that defines eligible startup status
• Angel Tax — abolished for new rounds, but note Section 54GB investments are primary issuances, also tax-neutral