Spousal joint ownership does not disqualify tax benefits on another home purchases: ITAT

Buying a new home often involves selling an existing asset, like land or shares. The good news for married couples is a recent tax tribunal ruling that clarifies their eligibility for tax benefits when reinvesting the sale proceeds. The ruling allows a potential tax exemption of up to INR 61.6 lakh on long-term capital gains.
Under Section 54F of the Income Tax Act, taxpayers can save tax on long-term capital gains (profits from selling an asset held for more than a year). To qualify, they must reinvest the net sale proceeds in a new residential property within a specified timeframe.
Previously, there was confusion regarding whether a spouse could claim this benefit if they jointly owned another flat with their partner. Tax authorities sometimes deny the deduction if a couple co-owned a property, potentially leading to a tax burden of up to INR 61.6 lakh in capital gains (as seen in a recent case).
A recent decision by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) clarifies this issue. The tribunal ruled that joint ownership of a flat with a spouse does not disqualify an individual from claiming tax benefits under Section 54F. This applies when they sell another asset and reinvest the proceeds in a new home.
In a recent case, Ms. Singh sold agricultural land and earned INR 61.6 lakh in long-term capital gains. She planned to claim an exemption under Section 54F by reinvesting the proceeds in a new house. However, the tax authorities denied her claim because she co-owned two other residential properties ? one with her husband and another with her father's HUF (Hindu Undivided Family).
The tribunal acknowledged conflicting high court decisions on this issue. However, they applied the principle laid down by the Supreme Court - when faced with two possible interpretations, choose the one that favours the taxpayer. Therefore, Ms. Singh was allowed to claim the tax benefit on her INR 61.6 lakh capital gains.
Tax experts advise caution, as some tribunals and courts may hold different views. Taxpayers in similar situations should check the jurisdiction of their tax authority and consider seeking professional advice.
This ruling provides clarity for married couples who co-own a flat and want to claim tax benefits when selling another asset and reinvesting in a new home. Taxpayers need to disclose all relevant information in their tax returns to avoid any potential penalties.

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Spousal joint ownership does not disqualify tax benefits on another home purchases: ITAT

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