Section 54F Tax Benefit on Share Sales: If a taxpayer sells long term shares or other suitable capital asset in various financial year then the benefit under section 54F of IT Act can be taken for number of times by re-investing same amount in one residential property itself. The issue has become popular following some expert interpretation backed by tribunal judgments allowing to re-invest capital gain from different financial year, into one under construction house itself, within the given time frame.
The clarification has come for the benefit of investors whose share holding are being redeemed from time to time for paying installment of an under construction property. As we all are buying the properties through loans in few financial years, therefore many taxpayer was in doubt whether the same can be applied for only once or several times in a financial year, as and when long term capital gain arise against one residential property.
Section 54F Tax Benefit on Share Sales
Section 54F of the IT Act offers relief to individual selling a long term capital asset (other than residential house) and buying another residential house. This section commonly applies to selling of listed shares, mutual fund, gold, land or business premises and re-investing the funds in a residential house. Conditions to avail benefits are not having more than one house (excluding the newly bought one) as on the date of transferring the earlier asset. Investment should be within a specific time frame.
Can the Exemption Be Claimed More Than Once?
Tax experts say the exemption can, in principle, be claimed multiple times when separate long-term capital gains arise in different years and are invested in the same residential house under construction.
Recent tax commentary and expert interpretations indicate that there is no statutory limit on the number of years for which Section 54F can be claimed in relation to the same house, as long as the construction is completed within the prescribed three-year period from the relevant transfer and all other conditions are satisfied. Each capital gains transaction is examined independently for eligibility.
So an investor who has disposed shares in the first financial year and then purchased a property under construction with money derived out of sale of shares in the same financial year can claim the same under section 54F.
However if in the next financial year the same investor disposes another lot of shares and has paid some more money towards purchase of a property under construction for ongoing construction and installment payment, that would be another eligible purchase in another financial year and it can be claimed under section 54F too if the section conditions are fulfilled.
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Important Conditions Taxpayers Must Meet
Although more than one purchase would be possible in a specific year, there are certain essential conditions that taxpayers need to fulfill. The amount must be invested in a residential house within the defined time limits. It can be clawed back if a second residential house is purchased in contravention of the rules prescribed in section 54F or if the new house is transferred within the stipulated lock in period. If the amounts placed in the capital gains account scheme were not invested in the residential house within the allowed period.
Besides this, it is also scrutinized by the authorities if the tax payer had more than one residential house at the time of each disposal, the failure of which might affect the exemption claim.
Expert Views and Tribunal Trends
It is widely observed by tax experts that on the basis of a couple of judicial precedents and tribunal decisions a broad interpretation is normally accepted. A genuine investment in residential house could come under section 54F even though the investment has been staggered in the same house.
More recent tribunal decisions have reaffirmed that the real intention of section 54F (investment in residential housing) is more important while considering the case rather than technicalities or strict compliance of section 54F which should be taken care of.
Each such case, however, requires detailed verification as per its specific facts, circumstances, and supporting documentation. The interpretation and decision by future judicial decisions and clarifications from the tax authorities may help the taxpayer on claiming successive sections in respect of construction properties by successive investments.
