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Land, one of the wonderful gifts of nature is now an item subject to taxes when the land is transferred from one person to another. The next question in hand is, what is the amount on which the taxes are to be paid?

Mr. ABC, who resided in Mumbai, sold his ancestral land situated in Juhu. He sold the piece of land for Rs. 78 Lakhs. But the guideline value of the land was Rs. 91 Lakhs as on the date of sale. With the Sale proceedings, ABC invested the amount in 3 villas adjoining each other. ABC, being a person without a lot of knowledge on taxation goes to a Chartered Accountant who advised him that Rs. 91 lakhs is taxable as the capital gain and not Rs. 78 Lakhs. But ABC contests saying that Rs. 78 lakhs is the entire amount that he received, and why he is liable to pay capital gains tax on the guideline value.

50C in the eyes of law:

As per the Income Tax Act, 1961, where the actual amount received on the sale of a property is less than the guideline value, then as per the provisions of Sec 50C, the guideline value is deemed to be the sale consideration, since it is more than the actual sale consideration. This was the explanation given by the Chartered Accountant to Mr. ABC.  Now, in his case, capital gains are calculated on the amount of Rs. 91 lakhs which is the guideline value of the asset.  

Mr. ABC had made a few investment options where he could invest thereby reducing his tax liability under the head Capital Gains. ABC decided to invest the amount in a house property during the year.

The next question that Mr. ABC had in mind was that whether exemption under Sec 54F be claimed if he invested the entire sale consideration in 3 similar villas adjoining each other within a same compound.   

Sec 54F – What it says?

As per Sec 54F of the Income Tax Act, 1961, if a person purchases a house property within 2 years from the date of sale of the house property that was sold, then the amount invested could be claimed as a deduction under Sec 54F.

ABC invested in the 3 similar looking villas within the same compound. He was of the opinion that he could claim the entire amount invested as a deduction from the Sale consideration, thereby ending up not paying any amount due. But unfortunately, he was not correct as the latest Budget brought the amendment in law saying that the deduction can be claimed only for the amount invested in one house property, i.e., in only one villa in his case. As per the notification issued by the CBDT, a property is a separate house property, if it has a separate entrance, a separate door number and a separate kitchen.

Now, Mr. ABC can claim exemption only for the amount he has spent to purchase one of those villas and not all three. ABC would have burnt his hands had he claimed a deduction on the amount he invested on all the three villas put together with a view that all the villas were within the same compound. 


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Category Income Tax, Other Articles by - Shrinivas (CA, LLB, CISA) 



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