A recent ruling by an income tax tribunal has provided significant relief to taxpayers, clarifying that joint ownership of multiple properties does not automatically disqualify an individual from claiming the tax exemption under Section 54F. This decision, which saved one taxpayer ₹12.7 lakh, hinges on the precise interpretation of the law’s “two-house condition.”
The Case in a Nutshell
In the case from the 2013-14 assessment year, a taxpayer sold a property for ₹64 lakh, generating a long-term capital gain of over ₹61 lakh. The individual reinvested the entire gain into a new residential property and claimed a full exemption under Section 54F.
The Income Tax Department, however, rejected the claim, citing that the taxpayer’s joint ownership of two other flats violated the Section 54F rule, which prohibits the exemption if a person owns more than one residential property on the date of the sale. This led to a tax demand of approximately ₹12.8 lakh.
The Tribunal’s Landmark Decision
The Income Tax Appellate Tribunal overturned the department’s decision. The tribunal’s key finding was that the disqualification clause in Section 54F applies only when a taxpayer has full ownership of more than one residential property. Since the taxpayer’s two other flats were jointly owned, the tribunal ruled that the “two-house condition” was not met.
This ruling reinstated the full exemption, reducing the taxpayer’s bill to a nominal ₹10,021 and resulting in a saving of ₹12.7 lakh.
What This Means for Taxpayers
Sujit Bangar, founder of TaxBuddy, noted on X that this ruling reinforces the principle that joint ownership does not equal disqualification for Section 54F benefits. The decision highlights the critical importance of understanding the precise legal definition of “ownership” in tax law, especially for those who hold property with family members. This clarification offers a much-needed lifeline to taxpayers who might hold partial stakes in multiple properties without having full control or ownership.