Delhi HC denies Widow's Income Tax Exemption claim against Purchase of Two Flats
For individuals and Hindu Undivided Families, Section 54F offers tax reduction on capital gains from the sale of long-term capital assets, except residential real estate.
Delhi HC – Income Tax Exemption – Tax on property sale – Taxscan
Delhi HC – Income Tax Exemption – Tax on property sale – Taxscan
A widow recently had her claim to capital gains tax exemption under Section 54F of the Income Tax Act disallowed by the Delhi High Court because she used the money from the sale of a land she inherited from her husband to buy two non-adjacent apartments in Noida.
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In 2005, the taxpayer received a Jaipur plot from her spouse; the property was originally bought in 1983. She sold the site for Rs. 77,75,000 during the 2012–13 fiscal year, and used the money to buy two homes in Noida for Rs. 44,13,775 and Rs. 42,39,275, respectively. On July 31, 2013, she claimed an exemption under Section 54F on her income tax return. The Assessing Officer, however, denied her application, stating that only one residential property is exempt from the regulation.
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The court decided that her apartments were separate units because they were on different levels and at opposite ends of the same tower, but Section 54F only permits exemptions when the investment is made in a single residential home. The court stated that the 2014 change, which substituted "one residential house" for "a residential house," unambiguously restricts the exemption to a single property in accordance with the legislative meaning.
It was suggested that taxpayers should purchase a single residential property or, if purchasing several units, make sure they are legally and physically combined into a single residence in order to prevent such tax problems. In the past, courts have granted exclusions in situations where two adjacent apartments operated as a single residence; however, in this instance, the separation rendered that argument impossible.
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Individual and Hindu Undivided Family (HUF) taxpayers are exempt from paying taxes on capital gains from the sale of long-term capital assets, with the exception of residential real estate, under Section 54F.
As reported in business standards, it wasmentioned that if the proceeds from the sale of a long-term capital asset (other than a residential property) are reinvested in one residential property, taxpayers can avoid paying capital gains tax under Section 54F. In this instance, the widow's exemption was rejected due to the court's stringent reading of the statute, even though she had used her capital gains to buy a house for the future. Taxpayers should invest in a single eligible residential unit to guarantee compliance and prevent such problems.
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