• Exemption under 54F

Dear All,

My mother is selling a commercial land where she is going to get a LTCG of approx 1 crores. In order to save the capital gain tax she intends to invest the same into a residential property. 

However since she is 68 and my father is 70 , she intends to add me also in the new property .

The earlier land was only in her name (single) which she inherited from her parents.

While I have clarity that the new property can be in her name jointly with her spouse (father), however I dont have clarity if a child's name can also be added in the new property. Me and my father will not be spending a single penny in buying the property or paying any municipal taxes involved in the property purchase.

Request your professional guidance on the same

Regards
Rahul Roy Chowdhury
Asked 4 years ago in Property Law
Religion: Hindu

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7 Answers

your mother can sell the property owned by her and purchase property in joint names and claim exemption under section 54 F

2)Section 54F of the Act provides that if a tax payer invests the sale proceeds received from the sale of any capital asset for buying a residential property; the long-term capital gains on sale of the property would be exempt.

3) section 54F being a beneficial provision, enacted for encouraging investment in residential houses should be liberally interpreted to include investment done in the spouse’s, son name too.

4) the entire purchase consideration for propertywill be paid only by you and not a single penny contributed by you and your father A purposive construction of the legal provisions is to be preferred as against a literal construction. Further, even if the provisions of section 54F are literally constructed, there is nothing in the section to show that the house should be purchased in the name of the tax payer only.

5) The Delhi High Court observed that section 54F does not require that the new residential property should be purchased in the name of the tax payer; it merely says that the tax payer should have purchased / constructed a ‘residential house’.

Ajay Sethi
Advocate, Mumbai
87947 Answers
6207 Consultations

5.0 on 5.0

Child name can be added in the new property.

Section 54F: Old Asset: Any Asset, New Asset: Residential House

Any Gain arising to an individual or HUF from the sale of any Long Term Asset other than Residential Property shall be exempt in full, if the entire net sales consideration is invested in

Purchase of one residential house within 1 year before or 2 years after the date of transfer of such an asset or in

Construction of 1 Residential House within 3 years after the date of such transfer

In case the whole sale consideration is not invested and only a part of the sale consideration is invested, exemption shall be allowed proportionately i.e.

Amount Exempt = Capital Gain X Amount Invested

Net Sale Consideration

Exemption under Section 54F not available in following cases

The above exemption would not be available if any of the below mentioned conditions is satisfied:-

The assessee does not own more than 1 Residential House Property on the date of transfer of such asset exclusive of the one he has bought for claiming exemption under section 54F.

The assessee purchases any residential house, other than the new asset, within a period of 1 year of the transfer of the old asset.

The assessee constructs any residential house, other than the new asset, within a period of 3 years after the date of the old asset.

Ganesh Kadam
Advocate, Pune
12338 Answers
191 Consultations

4.9 on 5.0

If the amount in property is wholly paid by your mother and the joint owner are you and your father your mother still get the exemption. As any investment in name of close relative Son,husband, wife are in preview section 54 income tax act exemption.

Refer recent ITAT mumbai decision on the issue:

http://abcaus.in/income-tax/capital-gain-exemption-us-54b-investment-in-wife-name-allowed-bhabhi-disallowed.html

Also Hon’ble Punjab & Haryana High Court in the case of CIT vs. Gurnam Singh 327 ITR 0278, for the proposition that investment of capital gains was eligible for exemption u/s 54B if the investment was made in the joint names of the assessee and his son.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

1. Mother can purchase NEW property, by further adding new names (whosoever), BY keeping her name as the FIRST holder and claim LTCG.

2. HOWEVER the other NEW Names shall never be able to claim LTCG and would be liable for full taxation, in the event of further sale by the NEW names, after demise of Mother.

3. HOWEVER, "IF" registers a GIFT deed, of equal ratio of Commercial Property before SALE, to Husband and Son, THEN all three can claim LTCG (subject to Time lapse) and all three can jointly buy Residental property,

Keep Smiling .... Hemant Agarwal

Hemant Agarwal
Advocate, Mumbai
5612 Answers
25 Consultations

5.0 on 5.0

You can purchase the property in joint names as well as a particular property can be in joint name. There is no legal bar for the same.

Prashant Nayak
Advocate, Mumbai
27275 Answers
88 Consultations

4.4 on 5.0

Dear Client,

Not long back, ITAT, Mumbai has held if someone has made the entire investment for the purchase of a new house, he is entitled to get the full benefit of the income tax exemptions, even if the property has been purchased in the name of a close relative.

Same will apply in Joint ownership.

Assessee was entitled to full exemption under section 54F when the full amount was invested by the assessee even though the property was purchased in the joint names for the sake of convenience

Recently, in Jitendra B. Faria, Mumbai vs. ITO, Mumbai [ITA No.6792/Mum/2016, decided on 27 April, 2017] for the A.Y. 2010-11,

http://www.financialexpress.com/money/have-you-purchased-a-house-in-your-relatives-name-you-wont-lose-income-tax-sop-now/660228/

Also,

Commissioner of Income Tax Vs Kamal Wahal the honorable Delhi High Court ruled in assessee’s favor. The honorable Court relied upon its own judgment in the case of CIT v. Ravinder Kumar Arora in which it was laid down that where the entire purchase consideration was paid only by the assessee and not a single penny was contributed by any other person, preferring a purposive construction against a literal construction, more so when even applying the literal construction, there is nothing in section 54F to show that the house should be purchased in the name of the assessee only. Section 54F in terms does not require that the new residential property shall be purchased in the name of the assessee; it merely says that the assessee should have purchased/constructed 'a residential house'

Read more at: https://www.caclubindia.com/articles/exemption-u-s-54-for-asset-purchased-in-different-name--24052.asp

Another significant ruling in favor of assessee can be found in the case of Director of Income Tax, International Taxation, Bangalore Vs Mrs. Jennifer Bhide by Karnataka High Court.

Read more at: https://www.caclubindia.com/articles/exemption-u-s-54-for-asset-purchased-in-different-name--24052.asp

Yogendra Singh Rajawat
Advocate, Jaipur
21481 Answers
31 Consultations

4.4 on 5.0

There is no legal impediment for purchasing the new property out of tht LTCG in joint names either with the spouse or a ward by the beneficiary/seller.

The law says that the LTCG should have been reinvested towards purchase of an immovable property, in full to claim exemption from paying income tax on it.

Therefore she can proceed with the purchase of new property combining you and your father as joint owners and can claim the exemption from income tax on LTCG.

T Kalaiselvan
Advocate, Vellore
78105 Answers
1543 Consultations

5.0 on 5.0

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