ITR filing: Is income tax rebate available on two houses bought from sale proceeds of one residential property?

For availing exemption for long term capital gains arising on sale of a residential house, you are required to invest only the indexed capital gains from sale of the existing house property and not the entire sale consideration

Balwant Jain
Updated23 Mar 2023, 02:08 PM IST
ITR filing: For claiming exemption under Section 54 the investment has to be made only in one house and if investment is made in more than one house, you have to choose the house in respect of which you want to claim the exemption.
ITR filing: For claiming exemption under Section 54 the investment has to be made only in one house and if investment is made in more than one house, you have to choose the house in respect of which you want to claim the exemption.(iStock)

Can I buy two residential house properties from the sale proceeds of single residential house property for claiming the exemption from long term capital gains jointly with my children? One property was purchased just 1 month prior to the sale and another is planned to be purchased within 2 years from the date of sale using the entire sale proceeds. If not, please guide me as to how I should go ahead with a view to ensuring that the benefits could be passed on to my son and daughter without any income tax implication either to me or my children in the event of my death.

For availing exemption for long term capital gains arising on sale of a residential house, you are required to invest only the indexed capital gains from sale of the existing house property and not the entire sale consideration. For claiming exemption under Section 54 the investment has to be made only in one house and if investment is made in more than one house, you have to choose the house in respect of which you want to claim the exemption.

However as per various judicial pronouncements, if more than one flats are used as a single unit like adjoining flats or duplex in the same building, the benefit can be claimed under Section 54 even for investment made in more than one flats. There is no restriction on you buying the new property in joint names of yourself and your son or daughter to claim the tax exemption under Section 54. What is required is that you should invest the required long term capital gains in the house. Your son or daughter can be made joint owner in the agreement even if they do not invest any money in the property. In case full capital gains cannot be invested for purchase of a house, you can invest up to Rs. 50 lakhs in capital gains bonds of specified financial institutions within six months from date of sale of the house.

In order to ensure that the property passes on smoothly to your son and daughter after your death, please prepare a will specifying the share of your son and daughter in all your properties whether movable or immovable. Your son or daughter will not have to pay any tax at the time of inheriting the properties but may have to pay tax as and when the property is sold.

(Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on his twitter handle)

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First Published:23 Mar 2023, 02:08 PM IST
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