Latest news with #Section54
India.com
10-08-2025
- Business
- India.com
ITR Filing 2025: Multiple Property Sales In A Year — Does Section 54 Exemption Apply to All?
photoDetails english Updated:Aug 10, 2025, 05:33 PM IST What Is Section 54 Exemption? 1 / 10 Section 54 of the Income Tax Act lets you save tax on long-term capital gains earned from selling a residential house, if you use the profit to buy or build another residential property in India within a specific time frame. Who Can Use This Rule? 2 / 10 Only individuals or Hindu Undivided Families (HUFs) are allowed to claim this benefit. Companies and partnership firms aren't eligible. Which Properties Qualify? 3 / 10 You must sell a long-term capital asset (held for over two years) that's a residential house. The new property bought with the proceeds must also be a residential house in India, not a commercial property or land alone. Time Limits for Reinvestment 4 / 10 If you buy a new house, do so within one year before or two years after the sale of the old property. If you build a new house, you have three years from the sale date to finish construction. How Many Houses Can You Buy With Exemption? 5 / 10 Usually, you can claim exemption by investing the gains into one new residential property. From Assessment Year 2020-21, there's a special option: if your total gains are up to Rs 2 crore, you can buy two houses—but only once in your lifetime. Can You Claim Exemption For Multiple Sales in a Year? 6 / 10 If you sell more than one house in a year, you can get Section 54 exemption for each, as long as all conditions are met separately for each sale and reinvestment. However, the two-house option is strictly limited to a one-time use for gains up to Rs 2 crore. New Limits for High-Value Gains 7 / 10 From Assessment Year 2024-25, the total exemption is capped at Rs 10 crore. If your capital gains or cost of your new house go above this, the excess will be taxed; only up to Rs 10 crore qualifies for exemption. What If You Cannot Invest Right Away? 8 / 10 If you can't reinvest the gains before your income tax return due date, deposit the money in a Capital Gains Account Scheme. Use these funds for your property purchase/construction later and still qualify for exemption. Important Record-Keeping 9 / 10 Keep detailed records for every transaction—whether you buy ready property, under-construction flats, or redevelopment units. Proper documentation and intent are crucial for the claims process. Take Expert Help 10 / 10 Real estate and tax rules can be complex and change often. Get professional advice to make sure you follow every Section 54 requirement and avoid losing your tax benefit due to small mistakes.
Economic Times
08-08-2025
- Business
- Economic Times
No income tax for son who sold late mother's flat for Rs 1.45 crore to buy seven houses; how a minor language error helped him Bombay High Court
ET Online No income tax for son who sold late mother's Mumbai house for Rs 1.45 crore: Bombay High Court order; Here's what happened Mr Nagpal was just a minor when his mother passed away in 1990 in Mumbai, leaving him her house property in her will. In 1993, his legal guardian sold that house for Rs 1.45 crore to a builder. Then in 1995, Nagpal's guardian, acting on his behalf, made a deal with a builder in Pune to buy several house units for the same Rs 1.45 crore payment. Initially, the agreement of sale was for five house units, but later it changed to seven for the same Rs 1.45 crore. So, Nagpal used the entire Rs 1.45 crore to buy these 7 house units. After factoring in inflation (indexation), his long term capital gain (LTCG) was Rs 1.08 crore, and he claimed the Section 54 LTCG tax exemption for the entire amount. For the uninitiated, Section 54 allows individual taxpayers to claim a full tax exemption on long term capital gains (LTCG) from selling residential house property/ land investing those gains into another residential property in India within a specified time period. Everything was going smoothly, until the tax department decided to search Nagpal's place under Section 132(1) and subsequently sent him a tax notice under Section 158BC in 1996. Shortly after, in 1997, the Deputy Commissioner passed an assessment order disallowing the deduction under Section 54 for the capital gain from the sale of his late mother's flat in Mumbai . Because of this order, Nagpal was now liable to pay income tax on the entire Rs 1.08 crore LTCG from the property sale. So he contested this order initially in ITAT Pune and later in the Bombay High Court. Before this fight reached the Bombay High Court on October 29, 2004, Nagpal submitted an appeal to the Income Tax Appellate Tribunal (ITAT) Pune, which delivered its ruling on March 7, 2003. The Bombay High Court analytically interpreted Section 54 and referenced two legal precedents set by the Karnataka High Court and the Madras High Court regarding Section 54, ultimately ruling in Nagpal's favour on July 22, 2025. The Bombay High Court said (extract): 'In the result, the order passed by the Assessing Officer and the ITAT, to the extent of deprivation of benefit of exemption under Section 54 (1) is hereby quashed and set aside and the Assessee (Nagpal) is held entitled to the benefit of exemption under provisions of Section 54(1) against the entire capital gains of Rs 1,08,30,625 (1.08 crore) arising out of sale of his flat in Mumbai, on account of utilization thereof towards purchase of seven row houses in Pune.' For 29 years, starting from 1996, Nagpal battles on and finally triumphed in the Bombay High Court. Read the story to find out how Nagpal won and the legal reasons behind it. How did this case start? According to Bombay High Court judgement dated July 22, 2025, here's the timeline of events: December 23, 1988: Nagpal's mother executed a will giving her Mumbai flat to him. Nagpal's mother executed a will giving her Mumbai flat to him. August 30, 1990: Nagpal's mother died and a legal guardian was appointed for Nagpal since he was still a minor. Nagpal's mother died and a legal guardian was appointed for Nagpal since he was still a minor. September 8, 1993: Nagpal's legal guardian entered into an agreement of sale for the Mumbai flat for Rs 1.45 crore. Nagpal's legal guardian entered into an agreement of sale for the Mumbai flat for Rs 1.45 crore. February 1994: Nagpal's guardian got the 'No Objection Certificate" from the Income Tax Department for sale of the flat. Nagpal's guardian got the 'No Objection Certificate" from the Income Tax Department for sale of the flat. June 20, 1995: Nagpal's guardian on his behalf entered into a joint venture agreement with Samant Estate Private Limited for construction of a residential house in their project situated at Pune. Under this agreement, Nagpal was set to get five flats in return for the money paid (Rs 1.45 crore). Nagpal's guardian on his behalf entered into a joint venture agreement with Samant Estate Private Limited for construction of a residential house in their project situated at Pune. Under this agreement, Nagpal was set to get five flats in return for the money paid (Rs 1.45 crore). July 28, 1995: Nagpal's legal guardian cancelled the old agreement and created a fresh agreement with the builder for allotment of seven flats in return for the Rs 1.45 crore paid. Nagpal's legal guardian cancelled the old agreement and created a fresh agreement with the builder for allotment of seven flats in return for the Rs 1.45 crore paid. June 19, 1996: The Income Tax Department initiated proceedings of search under Section 132 (1) of the Income Tax Act, 1961 against Nagpal. The Income Tax Department initiated proceedings of search under Section 132 (1) of the Income Tax Act, 1961 against Nagpal. September 13, 1996: Nagpal got an income tax notice under Section 158BC. Nagpal got an income tax notice under Section 158BC. April 22, 1997: Nagpal's guardian filed an ITR for the block period (1987-88 to 1996-97) declaring his income as Rs 13 lakh (13,41,350). Nagpal's guardian filed an ITR for the block period (1987-88 to 1996-97) declaring his income as Rs 13 lakh (13,41,350). July 21, 1997: Nagpal filed a revised ITR for the said block period and updated his income to Rs 51 lakh (51,20,990). Nagpal filed a revised ITR for the said block period and updated his income to Rs 51 lakh (51,20,990). June 27, 1997: The Deputy Commissioner of Income Tax, Special Range-3 Pune passed an assessment order disallowing the deduction under Section 54 against capital gain of Rs 1.08 crore arising out of Nagpal's flat at Mumbai for assessment year 1995-96. Substantial question of law regarding Section 54 which Bombay High Court said it will answer According to Bombay High Court judgement dated July 22, 2025, here's what Justice Sandeep V. Marne said: 'On the facts and in the circumstances of the case, whether the Appellant is entitled for availing deduction under Section 54 of the Income Tax Act, 1961 against the entire capital gain arising out of sale of his flat in Mumbai in as much as he has invested the sale proceeds from the sale of his flat at Mumbai by joint venture agreement with Samant Estate Pvt. Ltd. for acquisition/construction of the 7 row houses in their project at Pune?. The solitary issue that arises for consideration in this appeal is whether Section 54(1) of the Act allows the Assessee to set off the purchase cost of more than one residential unit against the capital gains earned from sale of a single residential house.' Also read: Wife pays no income tax after selling two houses for Rs 6 crore gifted by her husband, wins case in ITAT Mumbai; here's how it happened What did the Bombay High Court say about Section 54 prior to the 2014 amendment? In Budget 2014, the then Finance Minister late Arun Jaitley amended the provisions of Section 54 from 'A' house property to 'One' house property, meaning that taxpayers can get LTCG exemption for only one to the Bombay High Court judgement dated July 22, 2025, here's what Justice Sandeep V. Marne said: 'For the purpose of the present appeal, what is relevant is replacement of the expression 'a residential house' by the expression 'one residential house' by way of 2014 amendment. Prior to the 2014 amendment, capital gains arising from transfer of a long term capital asset, including a residential house, qualified for exemption if the same was invested for purchase or construction of 'a residential house'.' 'The department has disallowed the claim of the Assessee for adjustment of the entire capital gain arising of sale of the flat in Mumbai, on the ground that the Assessee has purchased seven row houses in project at Pune.' 'According to the department, exemption under Section 54 (1) of the Act is applicable only in respect of investment made in purchase of only one residential house and is not permissible for the purchase of multiple residential houses. The ITAT has accordingly granted the benefit of Section 54(1) of the Act in respect of one of the seven row houses purchased by the Assessee.' 'In our view, the amendment brought in by Finance (No.2) Act 2014 makes the position clear that after the amendment, the capital gains can be adjusted against purchase of only 'one' residential house.' 'The word 'a' is consciously replaced by the legislature by the word 'one' by way of amendment making the intention clear that after the amendment, it is impermissible to adjust the capital gains arising out of one house towards purchase of more than one houses. If the restriction of adjustment of capital gains against only one house was already there in the unamended Section 54(1), there was no necessity of amendment by specifically using the word 'one'.' Bombay High Court final judgement: Nagpal gets full LTCG exemption for seven homes Justice Sandeep V. Marne, Bombay High Court said: '…The position appears to be fairly well settled that use of the words 'a residential house' in unamended Section 54 (1) of the Act would not mean a single residential house and the contemplated even multiple residential houses.' 'The emphasis in the unamended Section 54 (1) of the Act is on the residential nature of the property and the objective was never to restrict the number of residential houses purchased against capital gains. The words 'a residential house' were merely descriptive nature of the assets sold/purchased and not restrictive of the number of assets sold or purchased. The position got modified by the Legislature only w.e.f. 01 April 2015.' '...Also of relevance is the fact that the provisions of Section 54(1) of the Act are beneficial in nature. The benevolent provision is aimed at encouraging the house purchase activities. It therefore needs to be read literally and reasonably. Therefore, even though two interpretations of the provisions of unamended Section 54(1) of the Act may be possible, the one in favour of the Assessee will have to be accepted. Reliance in this regard by Mr. Thakkar on Apex Court judgment in Mavilayi Service Coop Bank Ltd. (supra) is apposite.' Judgement: 'In view of the foregoing analysis, the Appeal is allowed. The substantial question of law formulated by this Court is answered in favour of the Assessee and against the Revenue. In the result, the order passed by the Assessing Officer and the ITAT, to the extent of deprivation of benefit of exemption under Section 54 (1) is hereby quashed and set aside and the Assessee is held entitled to the benefit of exemption under provisions of Section 54(1) against the entire capital gains of Rs 1,08,30,625 arising out of sale of his flat in Mumbai, on account of utilization thereof towards purchase of seven row houses in Pune.' What did Section 54 say prior to the 2014 amendment? Section 54: Profit on sale of property used for residence. '(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,." What does Section 54 say for AY 2025-26? Chartered Accountat (Dr.) Suresh Surana, says: "As applicable to Assessment Year 2025–26, Section 54 of the IT Act provides for exemption from long-term capital gains arising from the transfer of a residential house property, where the assessee, being an individual or a Hindu Undivided Family, invests the capital gains in the purchase or construction of one residential house situated in India. After the amendment made by the Finance (No. 2) Act, 2014, the scope of the exemption has been expressly restricted to a single residential unit located in India, replacing the earlier expression 'a residential house.' "Further, with effect from Assessment Year 2024–25, a monetary cap has been introduced, whereby the exemption shall be limited to the cost of the new residential house up to Rs. 10 crore. Any investment in excess of Rs. 10 crore shall be disregarded for the purpose of computing the exemption under this section." Legal precedents of other High Courts referred by Bombay High Court Justice Sandeep V. Marne, Bombay High Court said: 'Considering the overall conspectus of the case, we are of the view that the issue involved in the present case is squarely covered by the judgments of Karnataka High Court in Arun K. Thiagarajan (supra) and of Madras High Court in Tilokchand & Sons. We are in respectful agreement with the view expressed therein that the expression 'a residential house' in unamended Section 54(1) of the Act includes more than one residential house.' 'On the other hand, the issue involved in the present case appears to be squarely covered by the judgment of the Karnataka High Court in Arun K. Thiagarajan (supra), authored by one of us (The Chief Justice)...The Karnataka High Court took into consideration ratio of the Division Bench judgment of Madras High Court in Trilokchand & Sons (supra), in which a similar issue was involved…' "…The Madras High Court in Tilokchand & Sons (supra) has held that the word 'a' used in Section 54, prior to the amendment and substitution by the word 'one' with effect from April 1, 2015, itself means that there was provision in the unamended Section 54 to include plural units of residential houses, which is a reason why the amendment was necessary. The Madras High Court has also held that even if the multiple houses are purchased bearing different addresses, the same did not make any difference, so long as the same Assessee has purchased the same out of sale consideration of the sold house. ' What is the significance of this judgement for taxpayers? ET Wealth Online spoke to many experts about what might be the significance of this judgement for taxpayers. Here's what they said: Chartered Accountant Ashish Karundia, says: "The Court highlighted the significance of the prefix 'a' in the statutory language, underscoring that precise legislative drafting has far-reaching implications for taxpayer rights and legal interpretation. This view is consistent with rulings from other Courts, reflecting a judicial consensus. To reduce disputes and support the government's goal of promoting tax certainty and ease of doing business, the tax department may consider releasing a circular to clarify the position for earlier years." Chartered Accountat (Dr.) Suresh Surana, says: The Court reasoned that if the legislative intent had always been to restrict the exemption to investment in a single residential house, there would have been no necessity to amend the statutory language. The deliberate replacement of the word 'a' with 'one' signified a conscious shift in the provision, thereby altering it's scope with effect only from Assessment Year 2015–16. Accordingly, the High Court concluded that prior to the 2014 amendment, the term 'a residential house' did not impose a quantitative restriction on the number of residential properties eligible for exemption. The amendment was therefore held to be prospective in nature and not clarificatory, preserving the availability of exemption for investments in multiple residential houses during the pre-amendment period. Thus, it was held that the investment of capital gains in multiple residential units could still qualify for exemption under Section 54, provided the properties were residential in nature and acquired within the prescribed timeline. Mihir Tanna, associate director, S.K Patodia LLP says: 'Taxpayer can claim exemption against the long term capital gain (LTCG) by acquiring house property (i.e. to invest gain amount in acquiring new property - if it is earned from transfer of house property and to invest consideration in acquiring new property - if it is earned from transfer of other long term assets) Till FY 2013-14, there was litigation. Language of provisions was such that one view arises that by investing in two house properties also, exemption can be claimed and the same was even allowed by some high courts. However, the legislature was of the view that beneficial provision was created with the aim of investment in one residential property and accordingly, from FY 2014-15 section was amended. Recently, a matter of FY 1994-95 came before Bombay High Court as discussed in this article, wherein the Bombay High Court following the Judgments of other high courts allowed the benefit exemption for investing in 7 row houses. It was held that unamended provision is on the residential nature of the property and the objective was never to restrict the number of residential houses purchased against capital gains. The above discussed judgment will not have an impact on current transactions as provisions are amended so as to provide that the relief is available if the investment is made in one residential house situated in India.' Nilesh Modi ( ACA, LLB), says: 'This case proves that, in tax law, even a single alphabet - like 'a' - can decide the fate of a case. It's a reminder that precision in drafting of tax legislation can help in avoiding interpretational disputes and in promoting tax certainty. Encouragingly, the Government is working towards simplifying the income-tax law and is also plugging 'drafting lacunae'. Hopefully, this will lead to much fewer income-tax disputes - which augurs well for an investor-friendly business climate.' N.R. Narayana Murthy Founder, Infosys Watch Now Harsh Mariwala Chairman & Founder, Marico Watch Now Adar Poonawalla CEO, Serum Institute of India Watch Now Ronnie Screwvala Chairperson & Co-founder, upGrad Watch Now Puneet Dalmia Managing Director, Dalmia Bharat group Watch Now Martin Schwenk Former President & CEO, Mercedes-Benz, Thailand Watch Now Nadir Godrej Managing Director, of Godrej Industries Watch Now Manu Jain Former- Global Vice President, Xiaomi Watch Now Nithin Kamath Founder, CEO, Zerodha Watch Now Anil Agarwal Executive Chairman, Vedanta Resources Watch Now Dr. Prathap C. 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Hindustan Times
02-08-2025
- Business
- Hindustan Times
Can a wife claim Section 54 exemption by selling flats gifted by her husband and reinvesting in a new property?
In the context of intra-family transfers, such as gifts or sales between spouses, these transactions can be considered legitimate if it is legally executed through a registered gift deed or sale deed, as applicable. It is pertinent to note that the consideration for such transfer has to be real and traceable and not just a book entry. Such transactions should not be for the sole purposes of tax avoidance and therefore, the genuine change in the ownership should be established. Intra-family transfers, such as property gifts or sales between spouses, are considered legitimate if executed through a registered gift or sale deed. (Photo for representative purposes only)(Pexels) A landmark judgment from the Income Tax Appellate Tribunal (ITAT) Mumbai, delivered on June 9, 2025, affirmed that a taxpayer can claim full Section 54 capital gains exemption even when the new property is acquired from a spouse, provided all conditions are met. In this case, a woman sold two flats gifted by her husband for ₹6 crore in 2020 and reinvested ₹3.85 crore in another residential property. Despite the tax officer's objections, related to clubbing provisions and alleged circular financial transactions, ITAT held that the gift deed and genuine reinvestment satisfied all legal requirements, allowing exemption. This shows that genuine intra-family property transfers, if well-documented and legally executed, can qualify for Section 54 exemption. Family property transfers can qualify for exemption 'The Mumbai ITAT's ruling (June 2025) has re-affirmed that the exemption under Section 54 of the Income-tax Act, 1961 ('IT Act') can be claimed even in scenarios where reinvestment is made in property purchased from a relative (i.e including a spouse). However, such a transaction has to be genuine, documented and well supported by the financial evidence. Therefore, it is necessary that it should focus on the legal validity (i.e substance over form) and also be aligned with the necessary compliance with law to withstand any scrutiny,' says Kunal Savani, Partner, Cyril Amarchand Mangaldas. To this end, it is necessary to note that Section 54 of the IT Act provides for an exemption of capital gains arising from the transfer of a residential property, if such gains are reinvested in another residential property within specified timeline, i.e. purchase within one year before, two years after sale or construction within three years. Also Read: Has your real estate developer delayed possession of your flat? Here's how homebuyers can manage the EMI and rent burden Intra-family property transfer is a legal transfer and should be optimized legally for Section 54 exemptions ensuring a genuine process is followed which involves three aspects. 'First, gift and sale transactions must be genuine and well documented. Also, payment for reinvestment should be genuine and verifiable and documentation for payment trail should be maintained at all times,' says Deepak Kumar Jain, founder and CEO of Making intra-family transfers tax-compliant In the context of intra-family transfers, such as gifts or sales between spouses, these transactions can be considered legitimate if it is legally executed through a registered gift deed or sale deed, as applicable; consideration is real and traceable in case of sale transactions, beyond mere book entries and the purpose of the transaction is not solely tax avoidance, with genuine ownership change established. However, for the purpose of this provision of the IT Act, in the event there is an intra-family transfers like gifts or sale between spouses, those can be valid, given that such transfer is legally executed through a registered gift or a sale deed, as it may be the requirement. 'It is pertinent to note that the consideration for such transfer has to be real and traceable and not just a book entry. Such transactions should not be for the sole purposes of tax avoidance and therefore, the genuine change in the ownership should be established,' says Savani. Further, with respect to General Anti Avoidance Rule (GAAR), it is to be noted that it shall be applicable only if a taxpayer makes such transaction without any commercial substance, for instance, in the present case, the immediate resale of the purchased property to the spouse. For this purpose, it is necessary to ensure that such arrangements have to be real, legal and be beyond the tax benefits. Documents checklist 'Tax authorities look at the real intention and economic effect and not just the paper work or trail. Transactions making commercial and financial sense should be well documented and trail of transactions are clean then claim of Section 54 can stand strong even in intra family transfers,' says Jain. To claim tax exemption under Section 54 after selling gifted property, you need these key documents. First, for the gift transaction, keep the registered gift deed, gift declaration, donee's acknowledgment, and updated property records. For the sale of the gifted property, have the sale agreement, registered sale deed, bank statements showing the money received, TDS deduction details, and capital gains calculation. To claim tax exemption under Section 54 after selling gifted property, you need these key documents(HT Graphics) If you've reinvested in a new property, keep the new property's agreement to sale, a valuation report, and proof of payment. Also maintain an audit trail showing how funds moved from the sale to the purchase. Finally, get certificates from a chartered accountant or other professionals to confirm everything is in order. Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
Economic Times
30-07-2025
- Business
- Economic Times
Wife pays no income tax after selling two houses for Rs 6 crore gifted by her husband, wins case in ITAT Mumbai; here's how it happened
ET Online (Representative image) No income tax for wife who sold two flats for Rs 6 crore (5.98) bought originally by husband for Rs 51 lakh total, rules Mumbai ITAT A wife managed to win an income tax case in ITAT Mumbai, even after selling two house properties gifted by her husband in Mumbai for Rs 6 crore without paying any income tax. These properties were originally bought in 2002 for Rs 34 lakh and Rs 17 lakh each, and she sold them in 2020 for Rs 6 crore. According to income tax rules, she made a long term capital gain (LTCG) of just over Rs 4 crore after factoring in indexation (inflation). However, despite this LTCG of Rs 4 crore, she didn't owe any income tax because she reinvested the money to buy her husband's Lodha house property, also located in Mumbai, by claiming Section 54 benefits. As strange as it may seem, all of her transactions were completely legal, and she even paid the full stamp duty required for these deals. The Income Tax Assessing Officer (AO) said in this case since the husband is the deemed owner of the said property, as per income tax clubbing provisions, the capital gain earned on sale of property counts as the income of her husband. 'One cannot claim exemption under Section 54 on purchase of one's own property.' Apart from this, the AO also raised six objections as to why this lady should be liable for income tax on the sale of her Rs 6 crore property. One of the objections relates to the money used to pay for the flats. The AO analysed the bank account statement of the husband-wife duo and noticed that the wife received Rs 70 lakh on March 12, 2021 from a company in which she and her husband both are employed as directors. On the same date, she transferred the Rs 70 lakh to her husband's bank account. And then again on the same date, her husband transferred back the Rs 70 lakh to the company's bank account where they are both AO observed: 'The same rotation was followed for another payment of Rs 3 crore or 3,00,00,000 (Rs 1.5 crore each) on the same day that is 12.03.2021. Hence, it is seen that the payment of Rs 3.7 crore was moved from the company and reached the company through the wife and husband in a single day. This is nothing but rotation of money just to evade tax. There's no actual transfer of money, no right to use the property changed, only title of the property has changed. In view of the above, it is nothing but a colourable device used to evade tax.' The Income Tax Appellate Tribunal (ITAT) Mumbai rejected the objections of the Income Tax Assessing Officer (AO) and confirmed that the wife in this case is not required to pay any income tax on the capital gains of Rs 4 crore since she claimed Section 54 tax exemption by purchasing another house from her husband. Regarding the rotation of money, the ITAT Mumbai's judge said that the AO only focused on the transactions on March 12, 2021, when most of the purchase consideration has been discharged. The transactions prior to that date were not considered, where the assessee (wife) had initially parked the money in fixed deposits/with the company and then, received it back, which was used to pay the husband for buying the house apartment built by Lodha Developers. Also read: MahaRERA orders Lodha Developers to issue full refund of booking money after homebuyer's bank loan application got rejected Check out what else the ITAT Mumbai had to say and how the wife managed to win her case where she had to pay no income tax despite having Rs 4 crore in capital gains from sale of the property in Mumbai. How did this income tax case start? According to the judgement order of ITAT Mumbai dated June 9, 2025, here's the timeline of events: March 14, 2002: The wife purchased two flats in Hiranandani Gardens, Powai, Mumbai, for Rs 34 lakh (34,51,000) and Rs 17 lakh (17,40,00). She claimed to have purchase these properties in the joint name with her husband. The wife purchased two flats in Hiranandani Gardens, Powai, Mumbai, for Rs 34 lakh (34,51,000) and Rs 17 lakh (17,40,00). She claimed to have purchase these properties in the joint name with her husband. March 27, 2015: Husband purchased another house property in Lodha Estrella solely in his own name. Husband purchased another house property in Lodha Estrella solely in his own name. April 1, 2017: Her husband through a legal gift deed, gifted the wife his share of 50% in the said properties in Hiranandani Gardens, Powai, Mumbai. Her husband through a legal gift deed, gifted the wife his share of 50% in the said properties in Hiranandani Gardens, Powai, Mumbai. January 9, 2020: The wife sold the two house properties located in Hiranandani Gardens for Rs 5.98 crore (5,98,00,000). She calculated her long term capital gains as Rs 4 crore (4,21,83,273) and claimed Section 54 tax exemption benefits in respect of purchase of another immovable house property from her husband of Rs 3.85 crore (3,85,00,000). The wife sold the two house properties located in Hiranandani Gardens for Rs 5.98 crore (5,98,00,000). She calculated her long term capital gains as Rs 4 crore (4,21,83,273) and claimed Section 54 tax exemption benefits in respect of purchase of another immovable house property from her husband of Rs 3.85 crore (3,85,00,000). March 18, 2021: The wife used the money she got from the sale of the two Hiranandani Gardens house properties (2020) to buy her own husband's Lodha properties which had he purchased in 2015. She claimed Section 54 long term capital gains tax exemption for this purpose. What did ITAT Mumbai say? A total of six grounds were raised by the Income Tax Assessing Officer regarding why the wife should not get Section 54 long term capital gains exemption. Here's what ITAT Mumbai said: Sale agreement between husband and wife 'The Assessing officer has brought to tax long term capital gains of Rs 4,21,83,273 on sale of two flats without allowing the exemption claimed by the assessee under Section 54 amounting to Rs 3,96,55,000. The sale of flats have been executed vide agreements to sell dated January 9, 2020 and the said flats were initially purchased vide agreement to purchase dated March 14, 2002 read with registered gift deed dated April 1, 2017. The contents of these sale agreements (and purchase/gift deed) are not in dispute and the same have been executed by the assessee in her individual capacity and the consideration has been received by her in her bank account and which has been duly offered to tax by the assessee and has been brought to tax by the AO in the hands of the assessee. Ownership title transfer of the house properties 'Now, coming to exemption claimed by the assessee under Section 54 amounting to Rs 3,96,55,000, the same relates to purchase of another flat by the assessee from her husband vide registered agreement to sell dated March 18, 2021 for a stated consideration of Rs 3,85,00,000 on which the assessee has paid stamp duty of Rs 11,55,000. The factum of ownership of the said flat in the name of the husband of the assessee vide agreement to sell dated March 27, 2015 is not in dispute nor the contents of the subject registered agreement to sell dated March 18, 2021 wherein the title in the property has been transferred by him in the name of the assessee. Rotation of funds 'We find that the AO (tax department) alleging the rotation of funds has merely looked at the transactions on March 12, 2021 when the majority of the purchase consideration has been discharged and has not considered the transactions prior to that date where the money has been initially parked by the assessee in fixed deposits/with the company and thereafter, received back and out of which, the amount was paid to the husband of the assessee towards the purchase consideration. Further, we find that the capital gains which have been brought to tax relates to the flats that have been sold/ transferred by the assessee vide agreement to sell dated January 9, 2020 and the assessee has thereafter purchased another flat vide agreement to sell dated March 18, 2021 wherein the consideration has been discharged by March 12, 2021. The said purchase is thus within the stipulated time period of two years after the date on which transfer of the original asset took place as prescribed under Section 54, the claim of exemption under Section 54 cannot be denied to the assessee(wife)." Judgment: 'In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the AO is hereby directed to allow the exemption claimed by the assessee under Section 54 of the Act.' How does LTCG tax exemption under Section 54 work? Chartered Accountant Suresh Surana explains: "Section 54 of the Income Tax Act, 1961 provides that an individual taxpayer may claim tax exemption on long term capital gains arising from a sale of residential house property/ land by way of investing the capital gains in one residential property in India. Such new house property should be purchased within a period of 1 year before or 2 years after the date of transfer of old house or should be constructed within a period of 3 years from the date of transfer of the old house. It is pertinent to note that such exemption can be claimed only in respect of one residential house property purchased/ constructed in India. However, if the long term capital gains is upto Rs 2 crore, the taxpayer can avail a once in a lifetime option of acquiring 2 house properties within the above time limit. Also, the new house property would be subjected to a lock in of 3 years. If a taxpayer claiming exemption Section 54 of Income Tax Act, 1961 and transfers the new house within 3 years from the date of its acquisition/completion of construction, then the benefit granted under Section 54 of Income Tax Act, 1961 will be withdrawn and accordingly, the cost of acquisition of the new assets would be reduced from the exempted capital gains." The amount of capital gains exemption u/s 54 will be lower of following: Amount of capital gains arising on transfer of land; or Amount invested in purchase/construction of new residential house property (including the amount deposited in Capital Gains Deposit Account Scheme) Surana says: "The threshold limit of considering investment in new house property would be restricted to Rs 10 crore for the purpose of claiming deduction under Section 54 of the Income Tax Act, 1961." What might be some key legal takeaways from this judgement? ET Wealth Online has asked various experts about what might be some key legal takeaways from this judgement. Here's what they said: Keshav Singhania, Head – Private Client, Singhania & Co, says: "Based on our experience, it's always advisable to undertake transactions between related parties, especially those involving gifts and subsequent sales, in different financial years. Additionally, there are a few potential areas of caution to consider. Firstly, if any rental income is earned from immovable property, ensure that it is taxed solely in the hands of the done party after the gift deed is executed. Secondly, while gift deeds are not mandatory to be registered, it's always advisable to register them to ensure the legal sanctity of the document. A significant time gap between such transactions helps to promote the overall hygiene of the transaction and provides an additional defence against it being classified as a colourable device used to evade importantly, maintain comprehensive and accurate documentation regarding the fund flow for consideration of purchase or takeaway from the ruling is that in the case of joint ownership of immovable property, both parties should pay for their share of ownership from their own independent sources of income and clearly document the same vide bank account statement. The same is pivotal in establishing that both the parties are the real economic owners and that the name of the other party has not been added merely for name the ruling provides a welcome relief by reinstating the principle of substance (genuine transaction) over form(relationship between purchaser and seller)." Priyanka Jain, Partner, Vaish Associates, says: "This case effectively shifts the focus from "who" you're transacting with to "how" you're conducting the transaction—emphasizing substance over form in family financial planning and also asserts that genuine adherence to the law should not be penalised by tax authorities. The person in whose hands the gains are taxed is entitled to the exemption under Section 54. The ITAT noted a logical inconsistency in the tax department's approach: if they considered the husband to be the real/economic/deemed owner of the property for denying Section 54 exemption, then the capital gains themselves should have been assessed in the husband's hands, not the wife's . Thus, if you're considered the owner of a property for purposes of capital gains/income, same recognition must apply for claiming exemptions related to those gains/ the ITAT clarified that there is no bar in Indian tax law on claiming Section 54 exemption for buying a house from a relative, such as a spouse, as long as the transaction is genuine. What makes this particularly valuable for taxpayers is the practical flexibility it offers in tax planning. In many families, one spouse may own multiple properties while the other has capital gains tax liabilities. If property is received as a gift from a spouse, income may be clubbed with the transferor spouse. However, any exemptions (like Section 54) must first be fully applied—meaning, clubbing provisions do not override basic exemption it is crucial to maintain proper documentation of all property transactions, including purchase agreements, gift deeds, sale agreements, discharge of stamp duty liability and evidence of payment of consideration." Nikhil Kabra, Partner, Ved Jain and Associates, says: "Key findings of the Hon'ble ITAT due to which the assessee won the case: In the present case, the Tribunal observed that the sale consideration from the old property was duly received in the assessee's bank account and was offered to tax in her hands. Importantly, the capital gain was assessed and taxed by the Assessing Officer (AO) in the hands of the assessee(wife), thereby acknowledging her ownership. Furthermore, the assessee had utilized the sales consideration to purchase the new residential property (from her husband) within the stipulated time limit, and the payment was duly made through banking channels. Accordingly, the Tribunal found the transaction to be genuine and held that the assessee(wife) was eligible for exemption under Section 54 of the Act. Key legal takeaways are as follows: The property which has been sold should have been long term residential property and the sales consideration has to be invested for the purchase of residential property within two years after the date on which the transfer took place Section 54 does not prohibit purchase of a new house from a relative, including the spouse. What matters is that the transaction is genuine, duly documented, and the consideration is actually paid through proper banking channel. The amount to the extent of capital gain should have been utilized for the purpose of investment in the new residential house. Parking funds temporarily somewhere doesn't equate to tax evasion, if the funds are eventually utilized in purchase of new residential house before the due date of filing of ITR. If the funds could not have been utilized for purchase of new residential property before the due date of filing of ITR, then the unutilized capital gain has to be deposited in CGAS account scheme. Ankit Namdeo, Founder, ANK Advisors, says: Some key legal takeaways are: You can claim Section 54F exemption even on capital gains on transfer of a property received as a gift from your spouse or 'relative', as long as you are the legal owner of the property, through a valid registered gift deed, if the gains are reinvested in another residential property. There is no bar on purchasing the new residential property from a spouse or relative, provided the transaction is genuine and properly documented. The reinvestment must be completed within two years from the sale (or within three years in case of construction) to qualify for the exemption. The transaction must involve a registered sale deed, payment of stamp duty, and deduction of TDS wherever required. Courts and tribunals assess the authenticity and legal compliance of the transaction, not the personal relationship between the parties involved. Courts and tribunals assess the authenticity and legal compliance of the transaction, not the personal relationship between the parties involved. Even if the transaction of purchase or reinvestment is between close family members, the exemption should be allowed if all legal and financial formalities are fulfilled. "In the present case, it must be noted that the potential tax was less than Rs 3 crore, i.e. threshold for applicability of general anti avoidance rules. Under the GAAR regime an arrangement lacking commercial substance could be disregarded, in which case the outcome may have been different. GAAR which allows the taxmen wide powers to disregard any impermissible avoidance arrangement, undertaken with the main purpose to inter alia avoid tax, is a statutory anti abuse provision contained in the Income Tax Act, 1961." Alay Razvi, Managing Partner, Accord Juris, says: The reason why her claim was upheld: She was the legal and beneficial owner of the property sold. The flat was originally in joint name with her husband, but he gifted his share to her in 2017 via a registered gift deed. Since then, she received the rental income and sold the property in her individual capacity, receiving the entire sale proceeds in her bank account. The capital gains were assessed in her hands, and hence she was eligible to claim exemption under Section 54. The new flat was purchased from her husband via a registered agreement dated 18 March 2021 for ₹3.85 crore. Although the husband was the seller, Section 54 does not bar purchases from relatives, and the transaction was genuine, with proper TDS deduction and stamp duty payment. The consideration was paid by 12 March 2021, well before the extended deadline under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The Assessing Officer alleged that there was just rotation of funds between the assessee, her husband, and their private company. But the ITAT found that the sale consideration was actually paid, and the timing and flow of funds were explained, showing no intent to evade taxes. N.R. 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India Today
29-07-2025
- Business
- India Today
Wife pays no income tax after selling two houses gifted by husband
Do you have doubts regarding family property transfers and long-term capital gain (LTCG) taxation?This case might serve as an eye-opener. A Mumbai-based woman has successfully won a legal battle at the Income Tax Appellate Tribunal (ITAT), which ruled she was not liable to pay income tax after selling two flats worth Rs 6 crore that were gifted to her by her husband, reported The Economic case has drawn wide attention for its implications on capital gains tax in cases of spousal property SOLD, REINVESTED IN HUSBAND'S FLAT The woman sold two residential properties in 2020, which were originally bought by her husband in 2002 for Rs 34 lakh and Rs 17 lakh. The total sale value reached Rs 6 crore. She then reinvested the capital gains into another residential property, a Lodha apartment in Mumbai that was registered in her husband's Income Tax Department raised objections, arguing that the transaction appeared to be a roundabout way to avoid questioned whether the reinvestment in her husband's house qualified for the capital gains exemption under Section 54 of the Income Tax Act. However, ITAT Mumbai ruled in her tribunal confirmed that the transfer of property from husband to wife was legally valid and properly documented. The reinvestment of the capital gains into a residential property met the conditions for claiming the exemption, even though the transaction was between close family PRECEDENT CLARIFIED BY TRIBUNALThe ITAT decision reaffirms that capital gains exemptions under Section 54 are available even when the sold property is received as a gift, provided the taxpayer adheres to the rules regarding reinvestment and to the tribunal's findings, the woman had declared long-term capital gains of Rs 4.08 crore after applying inflation used the entire amount to purchase a share in the new flat, meeting the reinvestment conditions under Section 54. The tribunal stated that the transaction, though between spouses, was genuine and lawful, making her fully eligible for the experts believe this judgment will help clarify confusion for taxpayers involved in family property transfers. As reported by The Economic Times, the tribunal emphasised that there was no evidence of tax evasion or misuse, and the woman had lawfully followed the provisions of the Income Tax case sets a significant precedent, highlighting that tax exemptions cannot be denied simply due to the familial nature of a transaction, as long as legal formalities are properly followed.- Ends
