• Capital Gains Tax Exemptions under section 54f

Hi - My name is Soumya. I had a purchased a plot in Goa in December 2006, and sold it in July 2024. As part of this transaction, I had long term capital gains. In April 2024, I booked an apartment that will I will get a possession in March 2027. The agreement value of this apartment is more than the capital gains of my transaction in the plot. Based on my understanding of section 54f, I can claim exemption on capital gains tax as I purchased the apartment within 1 year of my plot sale and will get possession within 3 years. However, at this point from ownership point, I am exclusive owner of another apartment and joint owner with my husband in a house. I see that to claim under section 54f, I should not own more than 1 residential property during the time of sale of plot. My question is if joint ownership considered in section 54f as ownership? If joint ownership is not considered, then I own only 1 residential property during time of sale. I did some research and found there are multiple cases in income tax tribunal on this (pls refer link https://www.taxathand.com/article/35625/India/2024/Deduction-for-reinvested-capital-gains-available-to-co-owner-of-more-than-one-house )
and my understanding is that joint ownership is not considered as ownership based on cases disposed. Can you please guide me if I can claim section 54f with my condition
Asked 22 days ago in Capital Gains Tax

Yes, you can claim exemption under Section 54F based on your situation. Joint ownership is typically not considered full ownership for the purpose of Section 54F eligibility, as upheld in multiple tribunal cases. Since you are the exclusive owner of one property and a joint owner of another, it does not violate the condition, making you eligible to claim the exemption on capital gains tax from the sale of your plot.

 

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Shubham Goyal

Shubham Goyal
CA, Delhi
354 Answers
7 Consultations

As you have sold long term capital asset (i.e.plot) in the month of July 2024 therefore you can claim benefit of long term capital gain exemption u/s 54F. If the plot is sold on or after 23.07.2024 (assuming your residential status as resident) then you can calculate the capital gain under both old and new options. U/s 54F, taxpayer is allowed to own one house other than the new residential house property. Assuming new property has been purchased from the developer for which construction will be completed in the month of March 2027. Such a scenario is covered as construction of the property and time limit for completion of construction is 3 years from the date of sale of the original asset. If the amount of capital gain is not utilised before the due date of filing of the ITR (i.e. A.Y. 2025-26) then to claim exemption you are required to deposit the long term capital gain amount in the capital gain deposit account. 

 

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Vivek Kumar Arora
CA, Delhi
4953 Answers
1106 Consultations

 

Under Section 54F of the Income Tax Act, individuals can claim exemption from long-term capital gains tax arising from the sale of a capital asset (other than a residential house) if the net sale proceeds are invested in purchasing or constructing a new residential house within specified timeframes. One of the key conditions is that, on the date of transfer of the original asset, the taxpayer should not own more than one residential house property, excluding the new asset intended for the exemption.

Your Situation:


  • Original Asset Sold: Plot in Goa, sold in July 2024.

  • New Residential House: Apartment booked in April 2024, with possession expected in March 2027.

  • Existing Properties at the Time of Sale:

    • Sole ownership of one residential property.
    • Joint ownership (with your husband) of another residential property.

Key Consideration:

The primary question is whether joint ownership of a residential property is considered as "ownership" under Section 54F, which would affect your eligibility for the exemption.

Relevant Judicial Precedents:

Several judicial rulings have addressed this issue:

  1. Dr. P.K. Vasanthi Rangarajan vs. CIT [2012] 209 Taxman 628 (Madras High Court):

    • The court held that joint ownership of a residential house does not disqualify an individual from claiming exemption under Section 54F. The assessee was not considered the exclusive owner of the jointly held property, and thus, the exemption was allowed.

      India Tax Blog

  2. Ashok G. Chauhan vs. ACIT [2019] 105 taxmann.com 204 (Mumbai ITAT):

    • The Tribunal observed that the condition of not owning more than one residential house on the date of transfer refers to absolute ownership. Joint ownership does not equate to absolute ownership; therefore, the exemption under Section 54F was granted.

      India Tax Blog

  3. CIT vs. M.J. Siwani [2014] 366 ITR 356 (Karnataka High Court):

    • In contrast, this ruling held that even a fractional ownership in a residential property constitutes ownership, thereby affecting eligibility under Section 54F.

      India Tax Blog

Conclusion:

Given the conflicting judicial interpretations, the applicability of Section 54F in cases of joint ownership depends on the jurisdiction and specific circumstances. In your case, since you are the sole owner of one residential property and a joint owner of another, there is a reasonable basis to claim that you do not "own" more than one residential house in the context of Section 54F, based on favourable rulings like those from the Madras High Court and Mumbai ITAT.

Damini Agarwal
CA, Bangalore
460 Answers
31 Consultations

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