10 February 2016
If someone has sold his residential house property and the long term gains arising out of it has distributed among their 4 sons. and the amount has been utilized for purchase of 4 different residential houses in different locations. Can all the 4 properties being on different locations can be allowed exemption u/s 54.?
11 February 2016
Assessee (Father) can avail exemption of one house only as the Finance Act clarified this rule u/s 54 in the last budget. As the capital gain is taxable in his hands, the benefit of investing in 4 different houses is not available to him. The new house can be registered in the name of his son/s as the provision requires re-investment out of the same funds and not necessarily in the same name.
21 July 2024
Under Section 54 of the Income Tax Act, 1961, the exemption from long-term capital gains tax on the sale of a residential property can be claimed if the gains are reinvested in the purchase or construction of one residential house property within India. Here's how it applies to the scenario you've described:
### Scenario Overview:
1. **Sale of Residential Property and Distribution of Gains**: - A residential property is sold, and the long-term capital gains arising from the sale are distributed among 4 sons.
2. **Utilization of Gains**: - Each son utilizes their share of the capital gains to purchase a residential house property. - These properties are located in different locations.
### Understanding Section 54:
1. **Investment Requirement**: To claim exemption under Section 54, the capital gains must be reinvested in the purchase or construction of one residential house property.
2. **Implication for Multiple Properties**: - Section 54 specifies that the exemption is available if the capital gains are reinvested in one residential house property. It does not provide for exemption if the gains are distributed and used to purchase multiple residential properties. - Therefore, in your scenario where the gains are distributed among 4 sons and utilized to purchase 4 different residential properties in different locations, each individual property would not qualify for exemption under Section 54 individually.
3. **Consolidation Option**: - If the intention is to claim exemption under Section 54, the gains should ideally be consolidated and reinvested in one residential property. - Alternatively, the gains can be reinvested collectively by the family (including the 4 sons) into a jointly owned residential property. This would require proper planning and documentation to ensure compliance with tax laws.
4. **Other Options**: - If the exemption under Section 54 cannot be claimed due to the distribution of gains among multiple properties, the family may explore other tax-saving options such as investing in specified bonds under Section 54EC or investing in a new residential property jointly under Section 54F (if the conditions are met).
### Conclusion:
Based on the provisions of Section 54, the exemption from long-term capital gains tax is generally available when the gains are reinvested in one residential house property within India. If the gains are distributed among 4 sons and used to purchase 4 different residential properties in different locations, each property individually would not qualify for exemption under Section 54. Therefore, careful planning is needed to ensure compliance with tax laws and to explore alternative tax-saving options as applicable.
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