Capital gain section 54 and 54f (location of new property)

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Mohit Goyal (Querist)
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30 November 2013 Hi,
Please clarify, Section 54 of Income Tax regarding purchase of New Property's location is restricted to India or overseas purchase is also valid? Thanks in Advance for your responses.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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30 November 2013 Dear Mohit,

As such yes you can buy the house abroad and still claim exemption under 54/54F. there is no restriction prescribed in the Act. Rather there is a Mumbai tribunal judgment in the case of Mrs. Prema P Shah vs ITO 282 ITR 211 that specifically ruled in its favor. Mumbai tribunal again ruled in favor of the assessee in the case of ITO v. Dr. Girish M. Shah, ITA No. 3582/M/ 2009

You may refer to the same for your case. However, kindly note -

1. its a tribunal ruling. Thus it is not binding on any other jurisdictional court.

2. Before Prema Shah judgment the earlier courts disallowed exemption in similar cases (refer Smt. Leena J. Shah v. ACIT, 6 SOT 721 (Ahd.). (however this judgment was itself was not too strong)

My personal belief is that allowing for exemption in such cases would lead to absurd result defeating the whole intent of promoting investment in residential assets in the country. So don't be surprised if they amend the act to nullify such judgments.

3. You also need to check how this fits in DTAA. Often it happens in case of Capital gains that both the countries are allowed to tax as per domestic rules. In such a scenario you still end up paying taxes in the country of residence.

But you can safely claim the deduction/exemption as long as the rule stands as it is today.

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