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Capital gain tax exemption modified in finance bill, 2014?

11 September 2014

Let us suppose Mr. X needs to plan his investments to lower his tax liability for LTCG.

a: Mr. X currently has an ancestral property which he plans to sell and invest in a new residential property (say for Rs. 1 million).

b: Mr. X also has another house jointly in his name for which he is paying loan installments and also getting tax exemption.

The question now is will he get exemption under section 54 as per the new amendments brought in by the Finance Bill, 2014; since he clearly has more than one residential property in his name. Should he change his plan of action? If yes, what should be the best way to avail LTCG tax exemption?

Finance bill 2014 - https://indiabudget.nic.in/ub2014-15/fb/bill1.pdf

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12 Replies

Alpha Confidante (x) (32 Points)
Replied 11 September 2014

Also can he invest in two properties?

Pulkit Gupta (CA in Practice) (172 Points)
Replied 11 September 2014

As per finance act, 2014, amendment in section 54 is like that Words "constructed, one residential house in India" shall be substituted for "constructed, a residential house" with effect from 1-4-2015.

So in the current scenerio, you can claim section 54 exemption on second house also.

The same provision will be effective from 1st april 2015 only.

Roopesh Gangisetty (Article trainee) (176 Points)
Replied 11 September 2014

Dear Sir,

Is the amendment in Sec 54 leads to restrict the Tax Benifiet to only one property.

Pulkit Gupta (CA in Practice) (172 Points)
Replied 11 September 2014

Yes, unfortunately benefit of section 54 restricted to one house which situated in INDIA only.

Alpha Confidante (x) (32 Points)
Replied 11 September 2014

Originally posted by : Pulkit Gupta
	Yes, unfortunately benefit of section 54 restricted to one house which situated in INDIA only. So you can plan your tax saving only upto 31 march, 2015.

Kindly read Clause 22 indiabudget.nic.in/ub2014-15/fb/bill1.pdf which ends with

"This amendment will take effect from 1st April, 2015 and will,
accordingly, apply in relation to assessment year 2015-16 and
subsequent years."

That means it will be calculated for this fiscal year April 2014 to March 2015 which is the "assessment year 2015-16 " in the bill. Also a doubt arises as to whether we can not "own" more than one property for caliming exemption or we can not claim exemption if the proceeds from sale are invested in more than one property in India, for each property?

Pulkit Gupta (CA in Practice) (172 Points)
Replied 12 September 2014

Yes Mr alpha you are right the same is applicable w.e.f 1 april 2014.

Alpha Confidante (x) (32 Points)
Replied 12 September 2014

Originally posted by : Pulkit Gupta
	Yes Mr alpha you are right the same is applicable w.e.f 1 april 2014.

You have only answered a part of my doubts. What about the correct interpretation of the clause? What should be practiced?

Alpha Confidante (x) (32 Points)
Replied 12 September 2014

As per a few of the learned interpreters, it "may" imply that if Mr X buys Property A & B each for say 5 lakhs. where as his capital gain from the ancestral prop. is 1 million. Then he can claim a capital gain exemption for either buying A or B and not both.

Alpha Confidante (x) (32 Points)
Replied 12 September 2014

On the other hand, my query is quite clear on the point of buying. Mr. X only wants to buy a single property A, residential in nature. The issue of contetion is whether his currently having another property P, on his name, diable him to claim exemption?

Note: The proceeds of capital gain form the ancestral property N, will be totally used in A and in no way be utilized for P.

Pulkit Gupta (CA in Practice) (172 Points)
Replied 12 September 2014

Mr Alpha,

I study the query of you and come to the conclusion that:-
Before amendment the sections 54 use the word ‘a residential house’. Many judicial forums have held that the intention of the section is to promote investment in the residential property and, therefore, took a liberal view of the words ‘a residential house’ and held that even the investment can be made in more than one unit, whether in the same building or other.

The amendments by finance act, 2014 seek to annul the decisions of the various tribunals and clarified that the investments can be made only in one residential house even if two flats were in the same building.

I hope the above explanation solved your problem.

In case of any doubt, you can approach me in person @ https://taxhow.in/ask-queries/

Alpha Confidante (x) (32 Points)
Replied 12 September 2014

Dear Sir, in fact, I am of same opinion. Yet the issue of ownership has been raised by a few learned friends of mine, and owing to the introdution of this ambigous 'one residential house in India ' clause, their doubts are not without basis. On the other hand, section 54(a) mentions no limit on ownership while section 54(e) clearly metions a limit in the Act. I would like to invite a few more contributers and experts to express their opinion.