Tax exemption on buying property before selling one
These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.
Will buying an apartment before selling the existing one still allow me to claim long-term capital gains exemption in the same financial year?
Umesh Kumar Jethani Founder, ApkiReturn: Yes, as per Section 54 of the Income Tax Act, you can claim long-term capital gains (LTCG) exemption even if you purchase the new residential property before selling the existing one, provided you meet the specified conditions and timelines laid down under the section. The law specifically permits purchasing a replacement home up to one year prior to the sale date of your original as set. Doing both within the same financial year simplifies tax reporting, as you can offset gains against your prior investment in one ITR filing. To qualify, the original property must have been held for at least 24 months.
The exemption is capped at the lower of your capital gains or the new property’s cost, with an overall ceiling of Rs 10 crore. If your gains are under Rs 2 crore, you may even invest in two properties once in a lifetime. This “buy first, sell later” strategy is perfectly valid as long as the one-year window rule is followed. It’s an easy way to transition homes without losing tax benefits.
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I own one house and my wife owns another. If we both sell these and jointly buy one new house, will it be treated as owning two houses, making us ineligible for Section 54F? Also, if our flats go into redevelopment and we then sell shares and mutual funds to jointly buy one property, can both of us claim Section 54F in proportion to our investments?
Umesh Kumar Jethani, Founder, ApkiReturn: Under Section 54F, both scenarios allow you and your wife to claim the exemption. Since each of you owns only one residential house in your individual capacity, neither violates the condition of owning “more than one” house at the time of selling your investments. Courts have upheld that spouses may pool sale proceeds to jointly purchase a single residential property, with each claiming the exemption in proportion to their contribution.
In a redevelopment scenario, handing over flats to a developer does not negate ownership, as each of you retains rights to one future residential unit. Accordingly, both of you may invest proceeds from selling shares or mutual funds into one joint property and claim Section 54F benefits proportionately, provided the new property is purchased within two years, or constructed within three years, of the sale of the original assets.
Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away. Email ID: etwealth@timesgroup.com
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
Will buying an apartment before selling the existing one still allow me to claim long-term capital gains exemption in the same financial year?
Umesh Kumar Jethani Founder, ApkiReturn: Yes, as per Section 54 of the Income Tax Act, you can claim long-term capital gains (LTCG) exemption even if you purchase the new residential property before selling the existing one, provided you meet the specified conditions and timelines laid down under the section. The law specifically permits purchasing a replacement home up to one year prior to the sale date of your original as set. Doing both within the same financial year simplifies tax reporting, as you can offset gains against your prior investment in one ITR filing. To qualify, the original property must have been held for at least 24 months.
The exemption is capped at the lower of your capital gains or the new property’s cost, with an overall ceiling of Rs 10 crore. If your gains are under Rs 2 crore, you may even invest in two properties once in a lifetime. This “buy first, sell later” strategy is perfectly valid as long as the one-year window rule is followed. It’s an easy way to transition homes without losing tax benefits.
ALSO READ | If I gift my Rs 2 lakh to my wife who plans to invest in FD, who will pay income tax on interest earned?
I own one house and my wife owns another. If we both sell these and jointly buy one new house, will it be treated as owning two houses, making us ineligible for Section 54F? Also, if our flats go into redevelopment and we then sell shares and mutual funds to jointly buy one property, can both of us claim Section 54F in proportion to our investments?
Umesh Kumar Jethani, Founder, ApkiReturn: Under Section 54F, both scenarios allow you and your wife to claim the exemption. Since each of you owns only one residential house in your individual capacity, neither violates the condition of owning “more than one” house at the time of selling your investments. Courts have upheld that spouses may pool sale proceeds to jointly purchase a single residential property, with each claiming the exemption in proportion to their contribution.
In a redevelopment scenario, handing over flats to a developer does not negate ownership, as each of you retains rights to one future residential unit. Accordingly, both of you may invest proceeds from selling shares or mutual funds into one joint property and claim Section 54F benefits proportionately, provided the new property is purchased within two years, or constructed within three years, of the sale of the original assets.
Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away. Email ID: etwealth@timesgroup.com
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
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