Taxes arising from capital gains often become a reason for conflict between taxpayers and income tax authorities. When it comes to the sale of any property other than a residential house, section 54F comes as a relief for taxpayers by offering exemption on resulting capital gains.
However, if a taxpayer wants to claim this exemption, he must understand the necessary conditions prescribed under the law:
Assessee should invest the net sale proceeds of the property in the purchase of a new house.
New property should be purchased within a period of 2 years or constructed within a period of 3 years from the date of sale of the original asset.
The taxpayer should not own more than one house on the date of transfer, other than the one bought for claiming exemption under this section.
He should not purchase within 1 year or construct within 3 years any other residential house other than the one bought for claiming exemption under this section.
Sometimes, the lack of clarity or misunderstanding of these conditions does lead to disputes between the taxpayers and the tax department. Recently one similar dispute came for adjudication before Delhi bench of Income Tax Appellate Tribunal (ITAT). The major dispute, in this case, was regarding, whether the taxpayer can claim the section 54F exemption for an under construction for more than one year for the same house.