Legal title of the old property and new property must remain same to avail the benefits of Section 54 of I-T Act
New Delhi: If you are planning to buy a new property in Mumbai using proceeds of an old property, then don’t change the legal title of the new property. Legal title of the old property and new property must remain same to avail the benefits of Section 54 of I-T Act, which allows tax benefits on long-term capital gains on sale of old property if you use the proceeds to buy a new property within two years, the Times of India reported citing a recent ruling of the Income-Tax Appellate Tribunal (ITAT)’s Mumbai bench.
According to the ToI report, the ITAT’s Mumbai bench denied benefits of Section 54 of I-T Act to the taxpayer as he registered the new property in the name of his wife and adult daughter.
However, in a similar case, the Delhi High Court earlier had taken a decision favouring the taxpayer. But the ITAT‘s Mumbai bench decision was guided by the decision of the Bombay High Court, which had said that the new property must be registered in the name of the taxpayer, who owned the previous property as well, the daily mentioned.
If you are using the proceeds of your old property to construct a new house then you get three-years time to claim the benefits of Section 54, say tax experts. If you sell a property after holding it for at least two years, then the gain arising out of that is considered as long-term capital gain, which is taxed at the rate of 20 per cent after factoring in indexation (adjustment for inflation)
Taking precedence from the recent ITAT Mumbai branch’s ruling, tax experts advise those who come under the jurisdiction of the Bombay high court must remain careful while buying a new property to avoid tax litigation. Even if you are buying a property for the first time, you have to do the registration accordingly so that in future when you decide to sell the property to buy a bigger house, you will be able to avail the full benefits of Section 54.
For example, you are making a long-term capital gain of Rs 50 lakh on the sale of your flat which was jointly owned by you and your spouse then the new house that you are planning to buy must be owned jointly by you and your spouse to get tax benefit on the entire Rs 50 lakh. If the new property will be registered in the name of any one previous owner, then tax benefit will be allowed only on 50 per cent of the amount- Rs 25 lakh, say tax experts.
Source: Times Now