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Section 54F for owner of two flats

18 February 2024

Hi,

A person has two flats in his name (say Flat A and Flat B). He has some land/plots that he is planning to sell and buy a new flat (C). Under Section 54F, he is not eligible because he already has two flats in his name.

Can he transfer (through gift/settlement deed) one of the flats already in his name (say A) to his wife (housewife)? I understand there will still be clubbing provisions on any rental income from that flat A and those will have to be reported under his income tax and tax paid.

But after the gift deed for Flat A is executed, will clubbing provision also apply for Section 54F and will Flat A be considered as owned by that person and make him ineligible for using Section 54F?

Regards

Sri

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6 Replies

Saravanan nagaraj (463 Points)
Replied 18 February 2024

Yes you are right. 54F exemption will be disallowed to tax payer who has more than one residential properties.

As you said, transfer one of your residential property is good idea. Do it before this financial year closed. In the Next financial year, if you sell your land, you can avail 54F exception.

Gift deed should be declared by receiver. There is no consideration against Gift Deed. No capital gains. But if there is a rental income from the property. It will be accountable to your wife only. It will not be clubbing.

If there is a minor property, you sell it. As a guardian. That income will be included in your Income. You can't take 54F excemption on minor property income. In this case, you have no such an issues.

Thanks

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Srivatsan Narasimhan (16 Points)
Replied 18 February 2024

Thanks for the response. By "minor property" do you mean if the gift deed is given to a minor then that 54F cannot be applied?

Saravanan nagaraj (463 Points)
Replied 18 February 2024

If you transfer a property to minor through a gift deed, there is no capital gain. But, father or mother or guardian can maintain that property until he/she get major. In the meantime, if you sell the property that consideration will be clubbed into parent or guardian income. In that time, you can't avail 54F excemption against for your clubbed income.

As a child still not attain the age, he /she can't declare his / her income tax independently. So, the excemption also can't be claimed by a minor. Parent or guardian has no rights to claim excemption for another person property.

Srivatsan Narasimhan (16 Points)
Replied 19 February 2024

Thanks for the clarification. Is there any rule regarding the timing of the sale of the land for claiming relief under 54F?

I found the following in the Income Tax website's tutorial (PDF related to Section 54 and capital gains)

The exemption may be denied if the assessee already owns more than one residential house on the date of transfer of the original asset, other than the house acquired within one year before the date of transfer.

I think original asset here refers to the land that is being sold. Given the scenario in the original post:

i.e, Is it ok to do the gift deed for Flat A to wife after selling the land? At the time of sale of the land 2 properties will be still in that person's name. Then land sale happens. Does this prohibit applicability of Section 54 F. Then within 2 years the registration of Flat C happens. At the time of registration of Flat C, Flat A has already been transferred.

Or is it a must to do gift deed of Flat A before selling the land?

Thanks

Sri

Saravanan nagaraj (463 Points)
Replied 19 February 2024

Date of registration will be taken into account.

No, it is bad idea. You will have pay huge amount of taxes.

If you sold your land on 19th Feb 2024, at the time of transfer the land. You are still having 2 residential properties. You will not eligible for 54F claim.

Transfer your Flat A first, then just wait until Mar 31st 2024.

1st April 24, onwards you can sell your land property. Time is change, financial year change, your eligibility change. So, please do transfer Flat A now.

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Srivatsan Narasimhan (16 Points)
Replied 20 February 2024

Even after gifting one flat to wife, would the original owner be considered a "deemed owner" of the flat under Section 27. Will "deemed ownership" NOT be considered as real ownership and will exemption under Section 54F still be allowed?

If the wife sells the flat after 3 years, will the capital gains arising out of the gifted flat be clubbed with the original or deemed owner?