“Unlock the secrets of Capital Gains Tax exemption on new home purchases in a relative’s name. Navigate the legal nuances and controversies surrounding Sections 54 and 54F of the Income Tax Act. Learn from real cases and expert insights for a strategic approach to claiming exemptions and securing your investments. #TaxExemption #RealEstateInvesting”
1. Sections 54 and 54F of the Income Tax Act provide for exemption from capital gains on the transfer of long-term capital assets, being, a residential house or any other long-term capital asset. One of the conditions in both sections is that the eligible assessee should have purchased/constructed a residential house property within the specified time.
1.1 A big controversy exists as to whether the new asset so purchased or constructed should be exclusively in the name of the assessee who is claiming exemption from the capital gains or it can be in the name of another person, being a relative of the assessee.
1.2 There are divergent views of the Courts on this issue. Hon’ble Supreme Court in CIT v. Vegetable Products Ltd [1973] laid down the rule that if a statutory provision is capable of more than one view, then the view which favours the taxpayer should be preferred.
1.3 However, Hon’ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd held that it is neither desirable nor permissible to pick out a word or a sentence from the judgment and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court.
1.4 In this article, an attempt has been made to simplify the logical views taken by the authorities while giving judgment on this issue.
2. Purchase of new house property jointly in the name of spouse
2.1 Ravindra Arora v CIT (2011): Mr. Ravindra Arora sold a plot of land and purchased a new house property jointly in the name of his wife. He claimed exemption under Section 54F with reference to the whole amount invested in the said house property.
The AO allowed only 50% of the exemption claimed to the extent of his right in the new residential house.
The important factual findings in this case were that, it was the assessee who independently invested in the purchase of a new residential house though in his name but along with the name of his wife also, and that it was the assessee who paid stamp duty and corporation tax at the time of the registration of the sale deed of the house so purchased and has also paid commission and legal expenses in connection with the purchase of the house.
Further, the whole of the purchase consideration has been paid by the assessee, and not even a single penny has been contributed by the wife in the purchase of the house.
It was held by the Hon’ble Court of Delhi that the conditions stipulated in Section 54F stand fulfilled. It would be treated as the property purchased by the assessee in his name and merely because he has included the name of his wife and the property purchased in the joint names would not make any difference. Such conduct has to be, rather, encouraged which gives empowerment to women. There are various schemes floated by the Government itself permitting joint ownership with the wife.
3. Purchase of new house property in the name of spouse
3.1 V. Natarajan v. Commissioner of Income-tax (2006): Mr. Natarajan owned a house property in Bangalore. He sold the said property and purchased a property in Chennai in the name of his wife. The exemption claimed under sec 54 was disallowed by the Assessing Officer.
It was held by Hon’ble Madras High Court that if the assessee is the owner of the property and the capital gain on the sale of the property is assessed in the hands of the assessee, he is entitled to exemption under section 54, irrespective of the fact that the property is purchased in the name of his wife.
The predominant judicial view for section 54F is that the new residential house need not be purchased by the assessee in his name nor is it necessary that it should be purchased exclusively in his name. The operating point is that the entire investment shall come out of the sale proceeds and that there is no contribution from the spouse.
4. Purchase of new house property in the name of minor daughter
4.1 Ram Kumar v. Assistant Commissioner of Income-tax (2012): Mr. Ram Kumar sold some shares and invested sale consideration in purchasing a flat in the name of his minor daughter. He claimed exemption under section 54F.
The Assessing Officer disallowed the exemption claim solely on the ground that the flat had been registered in the name of his minor daughter. The revenue contended that the minor daughter had a separate legal identity from her father and her income was clubbed for income tax purposes with the income of her father. Therefore, the assessee and his minor daughter could not be held to be the same.
It was held by ITAT HYDERABAD BENCH ‘A’ that exemption under section 54F could not be denied to it on the ground that flat was registered in the name of the assessee’s minor daughter.
It was further held by the ITAT Hyderabad branch that a bare reading of section 54F (1) makes it clear that there is no requirement that the house has to be purchased in the name of the assessee only. The only requirement of the provision is the assessee must have purchased the house. In the present case, the fact remains that the minor daughter has no ostensible source to make such an investment in the purchase of a flat. It is the assessee who had invested out of the consideration received towards the sale of shares. The assessee has also explained the reason behind the registration of the house in the name of his minor daughter.
Hence, the assessee will be entitled to deduction u/s 54F for the flat purchased in the name of his daughter subject to the restrictions under the proviso to section 54F (1) of the Act.
5. Property purchased in the name of married (major) daughter:
5.1 Ganta Vijaya Lakshmi v. Income-tax Officer, Ward -1(3): Ms. Laxmi sold agricultural land and invested money in the purchase of a lat in the name of her married (major) daughter and claimed exemption under section 54F.
The AO rejected the claim as the property purchased was registered in the name of the major daughter and not in the name of the assessee.
The ITAT Vishakhapatnam Branch also rejected the claim stating that the benefit of exemption under section 54F cannot be extended to the major married daughters.
It was further held by ITAT VISAKHAPATNAM BENCH that the investments have been made in the name of the married daughter and apparently, she is also a major. Thus, it is not a case of joint ownership along with the assessee. The daughter of the assessee shall have every right over the property purchased in her name. Thus, it cannot be said that the intention of purchasing the properties was not to give benefit her.
Thus the term “assessee” is used in sec. 54F of the Act cannot be extended to mean the major married daughter
Conclusion: The holding of the new asset in the name of a close relative like wife, minor son, or daughter will not take away the exemption, so long as the legal ownership over the new asset is not vested in the ostensible owner (i.e., wife, minor son or daughter). If the acquisition/purchase/construction of the new asset is done in the name of a person, other than the assessee in such a way that the assessee no longer remains the legal owner of the new asset then he will not get an exemption under these sections.
It can be inferred from the judgments above; that the assessee should be careful in investing in new capital assets, so far as including the name of other person(s) is concerned. No name other than that of wife or minor children should unnecessarily be added in the documents at the time of purchase of the new capital asset either as a matter of routine or for convenient purposes as it may result in denial of exemption under section 54, read with section 54F of the Act.
The article is for educational purposes only
The author can be approached at [email protected]
Author Bio
I wish to sell a flat which was purchased on my name in 2005 and reinvest the full money on a new flat with a joint ownership of myself and my son in August 2024 (as I am a senior citizen).I am the only claiment for tax exemption in fy 2024-25. How the capital tax exemption is calculated as per the recent budget specification on longterm capital
I bought a house under my mother’s name in 2022 for INR 60 lac and sold it for 80 lac in 2023. Now, I bought another house under my name which is 90 lac. Is there a way to get capital gain exemption here?
Thanks
Hi Mam
If i sell a house registered in my sole name and then with the part of the money i buy and register another property in the sole name of my wife, will i be liable for capital gain on that amount.
To be specific, i sold a property for INR 65Lacs which was registered in my sole name. And then out of 65Lacs if i buy another property of 30 Lacs in the sole name of my wife, will i have to pay capital gain tax on the 30 Lacs? Kindly respond ASAP and the solution/advise.
Regards
AKS
To the best of my limited bookish knowledge, you can claim exemption for capital gain if the property purchased in the name of spouse subject to the fact that investment towards purchase was made from your account.
Mam namaskar ! Mai janana chahta hoon ki yadi mai apni paitrik sampatti jo ki agriculture land h mere village me use non agricultural stamp duty pay karne ke bad sell karne per usse mile paise se kya hum within time 2 years apni wife ke name se koi flat purchase karte h to mere per per gain tax Ki liability to mere upper nhi banegi ??
Mai sirf wife ke nam se flat purchase karu ya phir joint jisne first name mera ho ya only in my name . Kyonki sell karne wala only mai hoon aur amount bhi mere hi account me credit hoga .
Please mujhe bataye .Apka Dhanyvad 🙏
I have bought a property in joint name of me and my father in law. share of money paid by me is 25 percent and the rest 75 percent is paid by my father in law. he is exempted from tax payment. can i get full tax exemption on the capital gain.
Sir,
My taxable long time capital gain during the financial year 2023 24 Rs.40,000/- I do not wish to invest in tax savings scheme or to by a house please inform me the time limit with in which I should remit the Income tax I am resident
31st July 2024 – Before filing of return under section 139(1).
Please let me know if entire proceeds obtained by selling husbands land is invested in a house in the name of wife as first owner and daughter in law as joint/co owner.
My mother has a capital gain of 23 Lakhs. We want to purchase new property worth 46 lakhs jointly of which 23 lakhs will be contributed from my mother’s capital gain and I will avail 23 lakhs loan from a bank. I should be able to claim a housing loan tax exemption and my mother should get a capital gain tax exemption.
1)Are there any problems with the approach mentioned above?
2)should the stamp duty and registration charges flow from my mother’s captial gain?
3)Can i claim housing loan tax benefit?
I am co-owner of flat with my son. Now we are selling the flat. whether son can receive entire sale proceeds and reinvest it in his own name.
In case, the entire funding for purchase of house was done by your son, he can receive entire sale proceeds, pay capital gain tax or reinvest in his name for exemption under section 54 of the Act.
Thanks for Knowledge Sharing