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A MUST read for all property sellers

February 02, 2019 20:13 IST

Besides LTCG tax relief, permitting taxpayers to declare two houses as self-occupied brings a huge relief.

The rationalisation of property-related taxes is the most significant sop that stand-in Finance Minister Piyush Goyal offered in his Interim Budget.

Now, an individual can declare two houses as self-occupied instead of just one earlier.


Also, on selling a house property, a taxpayer can invest the proceeds in two houses and still get the long-term capital gains (LTCG) tax benefit. Earlier, the benefit was available for only one house.

The caveats when claiming the LTCG benefit is that the total capital gains have to be up to Rs 2 crore.

Also, the benefit can be claimed only once in a lifetime.

The changes in the tax laws benefit families who want to sell one big property and buy two separate houses to settle children or during the partition of the family assets.

It also benefits individuals who live in metros such as Mumbai and Delhi where property prices are much higher compared to the rest of the country.

“Many bungalow owners also sell their house to a developer for construction of a building. In return, the developer gives them two apartments. Such property owners will also get the tax benefit,” says Suresh Surana, founder, RSM Astute Consulting Group.

The other conditions to get the tax benefit remain the same.

The house has to be held for long-term - over two years.

The seller needs to purchase a residential house either one year before the date of sale/transfer or two years after the date of sale/transfer.

In case the seller is constructing a house, the seller has an extended time, that is, he will have to construct the residential house within three years from the date of sale/transfer.

There is, however, no clarity on whether an individual can sell multiple houses and invest the gains in one property to get the tax benefit under Section 54F.

While a few tax officers objected to this, many Income Tax Appellate Tribunals (ITAT) have allowed the taxpayer to avail the benefit in such cases as Section 54 is a beneficial provision.

In most cases, ITAT allows the taxpayer to take the benefit in case of grey areas if he has fulfilled all other conditions mandated by the law.

“The view of ITATs is that the assessing officer cannot put additional conditions,” says Naveen Wadhwa, a chartered accountant with

Wadhwa also points out that the benefit will not be available under Section 54F. Under this section, a taxpayer can sell any long-term asset and invest in a house to save long-term capital gains tax.

Long-term capital assets include a plot of land, mutual funds, stocks, gold, and so on.

Besides LTCG tax relief, permitting taxpayers to declare two houses as self-occupied brings a huge relief.

In many families, a couple stays in one house and buys another for parents or children. Until now, such taxpayers could choose to declare any one house as self-occupied.

On the other one, they had to pay tax on the rent the house could have fetched if it was let out - which is termed as notional rent. Now, they can declare both the houses as self-occupied and don’t need to pay any tax.

The tax on notional rent has also been one of the frequently disputed provisions.

In some specific cases, the income-tax laws gave relief to the property owner from paying tax if the second house was not let out.

One such situation was when the owner couldn’t rent out the house.

In such cases, the owner had to produce sufficient documentary evidence proving that he tried to let out the house, but he failed to do so despite all possible attempts.

The tax officer often disputed the claim of the house owners and asked them to pay the relevant tax, which led to the taxpayer going into appeal against the order.

The interim Budget announcement could reduce such litigation.

In addition, the tax deductible at source threshold for rent has been increased from Rs 180,000 to Rs 240,000.

Photograph: Mike Blake/Reuters

Tinesh Bhasin
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