Section 54 benefit- multiple houses

From assessment year 2015-16, ..............Section 54 has undergone some amendments.

As per amended provisions, exemption can be claimed only in respect of ONE residential house property purchased/constructed In India.

If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only. This also means no exemption can be claimed in respect of house purchased outside India.

So, he can get maximum exemption of rs. 62.50 lakhs !!!

 

Sir, here there are 2 transactions.  LTCG has arisen out of sale of 2 different properties and on 2 different dates. As per section 54, capital gain arising out of transfer one single residential house can be invested in one residential property to get the benefit. It does not mean that LTCG arising in a financial year out of sale of multiple houses, benefit of section 54 will be limited to only one purchase. There is also no restriction that assessee should not be owning multiple houses on the date of transaction. It only limits the investment to one house in relation to sale of one residential house. So in case of 2 separate transactions, sec 54 should individually apply to each and not clubbed up. 

Kindly enlighten if my view is not correct.

Your view was correct till the amendment brought about by the Finance (No. 2) Act, 2014 in Sec. 54; for which there are case laws in favour of assessee.

But after the amendment inflicted by Finance act. 2014 that the assessee should purchase ‘one residential house in India’ for getting the exemption under Sec. 54 against capital gains arising out of transfer of buildings or appurtenant lands.

It is clear that if an assessee now sells one or two or any number of residential houses in any financial year, he can claim exemption by buying one residential house in India.

Read: exemption-us-54-sell-two-buy-one  as extracted below::

"The assessee sells two residential houses, one for Rs. 15 lakh and another for Rs. 12 lakh during FY 15-16.  The indexed cost of acquisition of the two houses, both of which bought in FY 84-85 is Rs.5 lakh and Rs. 3 lakh respectively. Thus he has earned capital gain of Rs. 10 lakh on the first house and Rs. 9 lakh on the second. The total capital gain earned is Rs. 19 lakh. He has purchased two different houses, at two different places in India for Rs. 17 lakh each in FY 15-16 itself.

Can he claim exemption on both the houses separately, by showing one house bought against each one sold? The Department can claim that his capital gains for the year FY 15-16 was Rs. 19 lakh and he can claim exemption against only one of the two houses he has purchased. What if he buys one house in FY 16-17 and another in FY 17-18? The answer still appears to be in the negative. He will be required to pay tax on the capital gain of Rs. 9 lakh earned on the second house.

Is this the intention of the legislation?

Now we beg to raise a very important issue. Assume that the assessee claims total exemption and the Department accepts this contention and completes the assessment for the year. Suddenly after, say six years, a young and enterprising ITO discovers the possibility and raises a claim of tax on Rs. 9 lakh stating that this was the intention of the legislation which had escaped its notice? Yes, this is not retrospective taxation but is it tenable?

" He buys a house in Delhi NCR in Aug 2017 for Rs 1 crore in joint name with his wife. He also buys another house in Sep 2017 for Rs 1.25 crore, also in joint name with his wife."

Yes, if both the properties can be termed as ' a single property' ie. if adjoining or in same apartment !!!

Dear Sir.,

Above said way applicable if he sell two separate years...?

Originally posted by : RAJA P M
	Dear Sir., Above said way applicable if he sell two separate years...?

Excellent........... query........ Sir !!!

No. The assessment year differs...........

Dhirajlal Rambhia, Sir
Thank you for your views and explanation. 

But a doubt still persists in my mind. Sec 54 (1) says as follows:

"where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, one residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act."

The section talks about capital gain arising from transfer of a long term capital asset , being a residential house.  Capital gain on such a transaction is restricted to investment in one residential property for getting the benefit.

Does the wording of the section, as amended, not lend itself to interpretation that it applies to each transaction separately and not to consolidated gain of several transactions? Should Chargability of capital gain under sec 45  be not computed separately for each transaction and then consolidated ?

More over different properties can be sold on different dates/ year. In that case, if capital gain is clubbed, then period of 2 or 3 years will be counted from which date?

And does it mean that if assessee already owns a residential property, he will not get the benefit of section 54 for investment in new house?. If that was the intention of legislature, they would have added a proviso on lines similar to proviso under section 54F.

Kindly provide your considered opinion. Thank you once again.

Sir, are there any case laws on the subject after 2015 amendment?

" Does the wording of the section, as amended, not lend itself to interpretation that it applies to each transaction separately and not to consolidated gain of several transactions?"

In that case the wording should have been...... One/Each residential house in India, respectively.

Or any synonymous to that.

Actual intention of the legislators is to give exemption for all such capital gains over house property/ies or other capital assets (i.e. U/s. 54 or 54F) by investment in ONE Residential House.

" More over different properties can be sold on different dates/ year. In that case, if capital gain is clubbed, then period of 2 or 3 years will be counted from which date?"

In case of aggregate capital gains........... first property sell date......... otherwise as of the particular property sell date.

" And does it mean that if assessee already owns a residential property, he will not get the benefit of section 54 for investment in new house?. If that was the intention of legislature, they would have added a proviso on lines similar to proviso under section 54F."

As of the date that proviso not added....... but likely to be amended in near future, (for section 54 also).

One is to one exemption (u/s. 54) was available before the amendment in finance bill 2014; which the legislator have plugged from AY 2015-16. (as said before there are few case laws in favour of assessee during that time period)

Here legislators have not been able to plug one proviso (may plug it in near future) and that is called as 'Roll Over'.  Sell/register second property in next FY, as suggested by Mr. P M Raja earlier. Here one is to one ratio benefit can be availed.

Originally posted by : Naveen Kumar Jain
	Sir, are there any case laws on the subject after 2015 amendment?

Not come across any such case law, being effective from AY 2015-16.

Not likely to get any such case, as professionals prefer to avail 'the Roll over' option or prefer section 54EC exemption, rather than litigation.

In case, if  client approaches only after the sell of both the house properties, and if and only if exemption under section 54 is only route; one can purchase/register second property after April........... there the one is to one ratio can be claimed.