It works by excluding the excess from the computation rather than by capping the exemption directly. From AY 2024-25 the cost of the new asset above Rs 10 crore is not taken into account under s.54(1) and s.54F(1), and a matching restriction applies to the Capital Gains Account Scheme limbs - only capital gains up to Rs 10 crore under s.54(2), and net consideration up to Rs 10 crore under s.54F(4).
There are four provisos, two in each section, and they do different work.
On the deduction side, s.54 carries: "Provided also that where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of this sub-section." Section 54F carries the same words: "Provided further that where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of this sub-section."
On the deposit side, s.54(2) carries: "Provided further that the capital gains in excess of ten crore rupees shall not be taken into account for the purposes of this sub-section", and s.54F(4) carries: "Provided further that the net consideration in excess of ten crore rupees shall not be taken into account for the purposes of this sub-section." All four were inserted by the Finance Act, 2023 with effect from 1 April 2024, which is to say from AY 2024-25.
The mechanism matters because s.54 and s.54F compute relief differently. Under s.54 the exemption is the lower of the gain and the cost of the new house, so capping the cost at Rs 10 crore caps the exemption at Rs 10 crore. Under s.54F the exemption is the gain multiplied by the fraction that the cost of the new asset bears to net consideration. The proviso to s.54F(1) restricts the numerator - the cost taken into account - while the proviso to s.54F(4) restricts the net consideration for the deposit obligation. So on a s.54F transaction with net consideration well above Rs 10 crore, a taxpayer who reinvests the whole of it does not get a full exemption any more: the numerator stops at Rs 10 crore while the denominator does not.
That asymmetry is not something I found addressed on any page fetched, and it should be checked against the section text and against the way the return utility computes it before a large reinvestment is planned on the strength of it.
The stated reason for the cap was that "claims of huge deductions by high-net-worth assessees are being made under these provisions, by purchasing very expensive residential houses", which the government said defeated the purpose of the reliefs.
One practical consequence: for gains above the ceiling, the Capital Gains Account Scheme route is capped too. There is no point depositing more than Rs 10 crore of gain under s.54(2) or more than Rs 10 crore of net consideration under s.54F(4); the excess is outside the sub-section and will be charged under s.45 in the year of transfer regardless of what happens to it later.
Before AY 2024-25 a large property gain could be sheltered completely by buying a large enough house. It cannot now, and the excess is taxable in the year of transfer whatever the taxpayer does with the money. On a s.54F transaction the cap can bite even where every rupee of the net consideration goes into the new house, because the relief is proportionate. Where the gain or the consideration is near the ceiling, splitting a transaction across assessment years, or across co-owners with separate holdings, is worth modelling before the sale rather than after it.
I handed over possession of my factory and the buyer credited me with the price, but the sale deed came much later. In which year did I make the capital gain?
The company redeemed my preference shares and paid me the face value. Is that a transfer, or just a repayment?
I sold my firm's business to a company as a going concern for one lump sum. Is the surplus on plant and machinery still taxable as a balancing charge?
My mortgaged property was auctioned and the department kept what I owed it out of the proceeds. Do I pay capital gains on the whole price or only on what reached me?
We sold the goodwill our own firm built up over the years. It cost us nothing to acquire. Is the price taxable as a capital gain?
Our JDA was never registered and the project collapsed. Am I still taxed on capital gains?
The landlord paid my company to give up its tenancy. Is that taxable, and if it cannot be computed as a capital gain can the officer tax it as a casual receipt instead?
I received bonus shares and later sold my holding. What is the cost of the bonus shares: face value, nil, or something else?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.