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Capital Gain Tax Exemption – Date of Acquiring New Property

In summary, Section 54 of the Income Tax Act allows a capital gains tax deduction for property sellers acquiring another residential property within a specified timeframe. Determining the acquisition date involves complexities such as advance payment, allotment letter, agreement, construction completion, and possession dates. This article explores the significance of the acquisition date for capital gain tax exemption, providing key illustrations and judicial decisions.

*Period of Holding of a Flat:*
Illustration: Mr. Sanjay received an allotment letter for a flat on 22-1-2005. The sale agreement was executed on 27-2-2009. Indore Tribunal held the holding period from the allotment letter date, making Mr. Sanjay eligible for Section 54F exemption.

*Capital Gain Exemption and Construction Period:*
Illustration: Mr. Swami sold land on 14.05.2015, invested in house construction. The timeline extended beyond three years. High Court of Madhya Pradesh affirmed deduction eligibility, focusing on net sale proceeds investment, not completion.

*Date of Agreement vs. Date of Registration:*
Illustration: Mr. Sanjeev agreed to purchase a house on 27 December 2002, registered on 24th September 2004. Supreme Court ruled the agreement date as the acquisition date for Section 54 benefits.

*Terms of Agreement Deed and Capital Gain Exemption:*
Illustration: Mr. Rajiv entered a buyer agreement in 2009, fully paid on 17.09.2010, and obtained possession. Delhi Tribunal concluded the relevant date for capital gain exemption is when the full consideration is paid and possession is received.

*Advance Payment and Transfer Date:*
Illustration: Ms. Shahina paid an advance on 14 .02. 2006, sale deed executed on 04.09.2006. Delhi High Court clarified that advance payment alone doesn’t constitute transfer; execution of a written agreement and possession are necessary.

Sections 54 & 54F of the Income Tax Act face frequent litigation with settled and conflicting issues. Judicial pronouncements offer clarity on various aspects, yet conflicting decisions persist. Given the unique nature of each case, decisions should consider specific factors and circumstances.

Disclaimer: Content taken from The Economic Times e-news paper


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