Buying or selling property is not only an emotional decision but also one with significant tax implications. Taxpayers often face confusion regarding capital gains, exemptions, and compliance under the Income-tax Act. This article attempts to simplify these complexities through practical case-based discussions supported by relevant judicial pronouncements.
Also Read: Taxation of Property Transactions: Key Section 54/4F Judicial Pronouncements – Part 2
1. When is a Property Sold for Section 54/54F?
Brief Facts:
The assessee received consideration and handed over possession of the property earlier, but the registered sale deed was executed later.
Ruling:
The Mumbai Tribunal held that the date of execution of the registered sale deed should be treated as the date of transfer for the purpose of computing the prescribed investment period under Sections 54/54F
Key Takeaway:
For claiming exemption, the registered sale deed is decisive, even if possession or payment occurred earlier.
Case Reference:
Vijay Krishnaji Sawant vs ITO (ITAT Mumbai), ITA No. 8991/Mum/2025, Order: 18.03.2026
2. Purchase Without Registration – Valid for Section 54
Brief Facts:
The assessee sold a residential property in AY 2026–17 and computed long-term capital gain of ₹6.68 crores. She claimed exemption under Section 54 based on acquiring a new residential property through an unregistered agreement, having made substantial payment and taken possession.
Ruling:
The Tribunal held that since substantial consideration was paid and possession was taken, the transaction is protected under Section 53A of the Transfer of Property Act, 1882. Accordingly, exemption under Section 54 cannot be denied merely due to non-registration.
Key Takeaway:
Registration is not mandatory—payment and possession can establish eligibility for exemption
Case Reference:
3. Is Physical Possession Mandatory for Claiming Section 54 Exemption?
Brief Facts:
The assessee purchased a flat in 2011 and sold it on 19-12-2014, earning a long-term capital gain of approximately ₹2.31 crores. He invested in a new residential property booked on 31-10-2014, i.e., within one year prior to the transfer of the original asset. However, possession of the new property was scheduled for 31-12-2018, whereas the prescribed time limit for construction expired on 19-12-2017.
Ruling:
The Tribunal held that deduction under Section 54 is allowable even if possession or completion of the new property occurs after the prescribed time limit, provided the investment is made within the stipulated period.
Key Takeaway:
Physical possession is not an absolute prerequisite—timely investment is the key factor for claiming exemption under Section 54
Case Reference:
Arvinder Singh Sahni v. DCIT (2026) – ITAT Mumbai
Multiple Floors = One Residential House (Section 54)
Brief Facts:
The assessee sold her undivided half-share in a residential house for approximately ₹3.82 crores, resulting in long-term capital gains of about ₹3.42 crores. To claim exemption under Section 54, she invested in a residential property bearing the same municipal number by purchasing the ground floor for about ₹1.43 crores and the first floor for about ₹1.34 crores. The remaining amount was deposited in the Capital Gains Scheme (CGAS).
Ruling:
The Tribunal held that the expression “one residential house” includes multiple floors of the same building. Accordingly, the Assessing Officer was directed to allow exemption under Section 54 on both the ground and first floors as claimed by the assessee.
Key Takeaway:
Investment in multiple floors of the same property can still qualify as one residential house for the Section 54 exemption.
Case Reference:
Smt. Payal Bansal v. ITO (ITAT Delhi), ITA No. 1254/Del/2019 , Dated: 13.03.2026
5. Ownership of Multiple Floors ≠ Multiple Houses (Section 54F)
Brief Facts:
The assessee sold shares of an unlisted company and invested the proceeds in a residential property. At the time of transfer, she owned the basement and second floor of another property in Delhi.
Ruling:
The High Court observed that ownership of different floors does not amount to ownership of multiple residential houses. Such portions are to be treated as a single residential house, and the exemption under Section 54F cannot be denied on this ground.
Key Takeaway:
Owning multiple floors in the same property does not violate Section 54F conditions.
Case Reference:
6. Is Construction Cost After Purchase Eligible under Section 54?
Brief Facts:
The assessee invested long-term capital gains in purchasing a residential property. Subsequently, she demolished the existing structure and reconstructed a new house. She claimed the construction costs as part of the eligible investment under Section 54.
Ruling:
The Tribunal held that construction costs incurred after the purchase of the property are also eligible for exemption under Section 54.
Key Takeaway:
The exemption under Section 54 is not limited to the purchase alone—subsequent construction costs can also be included in the eligible investment.
Case Reference:
Smt. Payal Bansal v. ITO (ITAT Delhi), ITA No. 1254/Del/2019 , Dated: 13.03.2026
7. Can Exemption be Claimed if Property is Registered in a Relative’s Name?
Brief Facts:
The assessee, an NRI, invested the sale proceeds from five villas in a new residential property. The property was registered in his sister’s name because he was unable to travel to India. However, the entire consideration was paid by the assessee, and the property was subsequently transferred back to him through a gift deed.
Ruling:
The Tribunal held that the exemption under Section 54F cannot be denied merely because the property was initially registered in another person’s name, where:
(a) The investment was made by the assessee; and
(b) The intention and ownership were clearly established.
Key Takeaway:
Substance prevails over form—exemption cannot be denied if the investment is genuinely made by the assessee, even if the property is temporarily registered in a relative’s name.
Case Reference:
DCIT (International Taxation) v. Revanth Challagalla (2026) – ITAT Hyderabad
8. Is the Holding Period of the Previous Owner Considered in the Case of Inherited Property?
Brief Facts:
The assessee sold a property which originally belonged to his late father. The property was vested in a family trust created under the father’s will in 1984. By a deed dated 04-02-2017, the trust transferred the property to the beneficiaries, including the assessee (holding a 22.45% share). Thereafter, the co-owners sold the property on 10-02-2017.
Ruling:
The Tribunal held that where a property is acquired through inheritance, succession, or devolution, the period of holding of the previous owner (including a trust) must be included in determining the nature of the capital asset. Accordingly, the gain on sale was treated as long-term capital gain.
Key Takeaway:
In inherited properties, the holding period of the previous owner is also counted, which can significantly affect tax treatment as a long-term capital gain.
Case Reference:
DCIT v. Bharat Lakhaji Nandwana (2026) – ITAT Ahmedabad
Conclusion
These rulings highlight that while tax laws may seem rigid, their interpretation often focuses on practicality and substance.
This is just the beginning—more such case studies will be covered in the next part to further simplify the nuances of capital gains on property transactions.
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Simplifying Tax – One Case at a Time | CA Anita Bhadra | The author can be approached at caanitabhadra@gmail.com.
Disclaimer: The article is for educational purposes only.
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