Sec 54f ,new asset in joint name;balancesheet issues?

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anant (Querist)
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12 January 2014 Dear Sirs,
Assessee sold original asset u/s 54F and transfers sales consideration to his wife's account. An under construction residential flat is booked in their joint names but payment of instalments to the builder is made from the wife's bank account.Now my questions are as follows;-

1)From which accounting year will the flat be shown as an asset in balancesheet-year of booking or year of possession? If the answer to this question is year of booking then what amount will be shown as asset-the full sale value or the total amount paid as instalment till 31stmarch of that accounting year?
2)In whose balancesheet ,assessee's or his wife's the new property will be shown as an asset so that section 54 F exemption may be successfully claimed without any problems or hitches. OR should 50% sale value be shown as an asset in both assesse's and his wife's balancesheet?

THANKS IN ADVANCE

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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12 January 2014 What is the income of the wife is to be seen. Marley as the sale proceed was transferred to the wife's account does not make your wife to claim the benefit. If still you continue and show the same as gift from husband then first of all provisions of Section 64 will come into play and will be clubbed with the husband. On the other hand husband may be denied of the deduction u/s 54F.

To claim the deduction u/s 54F you have to fullfill the provisions of section 54F(4) and then the same should be claimed in the hands of the husband.

As regards showing in the balance sheet the same is to be shown in the hands of the husband and the amount paid is to be capitalised from the year in which which payment has been made.

Since I have already stated that wife has not sold anything and she does not have any source of income you cannot show then equal partners.

anant

anant (Querist)
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12 January 2014 Respected Sir,
So you do not concur with the decisions of various high courts in recent years giving a liberal interpretation of sec 54 and sec 54F holding that even if the new asset is purchased in the name of spouse of the assesse claiming exemption u/s 54 or 54F, the revenue dept would not deny the exemption?
Thanks in advance

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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23 July 2025 You're dealing with a situation where an assessee (taxpayer) has sold an original asset (land or property) and used the proceeds to purchase an under-construction flat in joint names with his wife. The question centers around Section 54F (capital gains exemption) and how the new asset (the under-construction flat) should be accounted for in the balancesheet, and in whose name the asset should be shown for claiming the exemption.

Key Points:
Section 54F provides a tax exemption on long-term capital gains if the sale proceeds are reinvested in purchasing a new residential property. The exemption applies only if the taxpayer owns no more than one residential property at the time of the sale.

Joint Ownership: Since the new property is being booked in joint names (the assessee and his wife), the question arises about how this affects the accounting and claiming of the exemption under Section 54F.

Questions & Answers:
1) From which accounting year will the flat be shown as an asset in the balance sheet?
The flat will be shown as an asset in the year of possession, i.e., when the possession of the property is handed over to the assessee and his wife, not the year of booking.

Reason: In accounting, the transfer of ownership (i.e., the transfer of legal rights to the property) is the key event that determines when the asset is recognized. Even if payments have been made and construction is ongoing, the flat will be shown as an asset only when the possession is taken or the legal transfer occurs.

For accounting purposes:

Year of Booking: You may show the advance payments or installments paid up to 31st March as a current asset or under "Advances" in the balance sheet.

Year of Possession: The full value of the property will be recognized as an asset when possession is given.

The amount shown will be the total paid up to that date (for example, the installments paid till 31st March, not the full sale value).

2) In whose balance sheet will the new property be shown for claiming the exemption under Section 54F?
Section 54F requires that the assesse (the taxpayer who sold the original asset) must reinvest the capital gains in a new residential property in order to claim the exemption.

Since the new property is in joint names, the exemption can be claimed if the assesse has a beneficial interest in the property. In this case, the assessee's capital gains would be considered to have been reinvested if the flat is jointly owned, but it is important to determine the proportion of ownership.

Option 1: The full property value should be shown in both balancesheets (assesses and wife’s):

Ideally, the exemption claim should be proportionate to the ownership share of each person. For example, if the property is 50% owned by the husband and 50% by the wife, then each person should show 50% of the asset in their respective balancesheets.

The assessee can claim the exemption on the capital gains portion invested in the property, and this would be based on the share of the property in his name.

For Claiming Section 54F: The assessee needs to have at least a 50% or more share of the property (if joint ownership is 50/50), and the full capital gains must be reinvested. The exemption can only be claimed on the portion of the property owned by the assessee, not on the wife’s share.

Option 2: Property in the wife's balance sheet:

If the wife is the primary person who paid the installment or is the primary holder of the asset, the exemption might not be available for the assessee.

Section 54F specifically looks at the ownership of the asset in the assessee's name, so if the payments are made entirely from the wife’s bank account and the property is primarily in her name, the assessee may face issues in claiming the exemption.

Conclusion: To avoid complications, the capital gains invested by the assessee should be linked with his share of the joint property. Both the assessee’s and his wife’s balance sheets will reflect the respective ownership share (typically 50% each), and the exemption claim should be based on the assesse’s share.

Practical Recommendations:
Ownership Split: Ensure that the property is jointly owned, and the investment is reflected correctly in both the assessee’s and wife’s accounts.

Exemption Claim: The assessee can claim an exemption for his share of the investment made from the sale of the original asset. For a successful claim under Section 54F, you may need to show the asset and capital gains in the assesse’s name (or his share of it) and ensure the capital gains have been fully reinvested.

Documentation: Ensure proper documentation that reflects the ownership proportions of the property in both the husband's and wife's names, especially if the tax authorities ask for evidence of the assessee’s share in the joint property.

Summary:
The flat will be shown as an asset in the year of possession (when the assessee and his wife actually take possession of the property).

Exemption under Section 54F can be claimed proportionally based on the assessee's share in the joint property. Both the assessee and the wife should show the asset in their respective balance sheets, and the exemption should apply based on the assessee’s ownership share.

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