How to Save on Taxes While Selling Your Residential Property | Section 54 Rollover Deduction

No, Section 54 applies only to long-term capital gains from sale of residential house. Section 54F (deduction in respect of investment in one house in India) and section 54EC (deduction for investment in specified bonds upto ` 50,00,000 in a financial year) apply to sale of residential plot and deductions may be availed under those sections subject to fulfilment of conditions under those sections.

Yes, Section 54 does not require that long-term capital gains must arise from sale of residential house situated in India. Only investment of long-term capital gains from transfer of residential house wherever situated must be made in house in India. If it is invested in house abroad, there will be no deduction. If transfer of residential house wherever situated is made on or after 01.04.2019, long-term capital gains from them if not exceeding 2 crores may be made in 2 residential houses in India and deduction in respect of those investments shall be allowed from long-term capital gains. This is once in life-time opportunity.

Yes, Investment must not be made in more than 2 houses. More than 2 houses can be sold and resulting long-term capital gains not exceeding 2 crores can be invested in not more than two residential houses in India.

Cost of two houses with highest cost will be deducted from capital gains of ` 1.95 cr. and balance capital gains invested in third house will be taxed. In this case, ` 1.65 cr. (cost of Houses A and B) will be deducted and balance capital gains of ` 30 lakhs invested in house C will be taxed. If instead of investing in House C, ` 30 lakhs had been invested in specified bonds covered by section 54EC, entire capital gains of ` 1.95 cr. would have been tax-free.

No, The amendments in section 54(1) come into force from Assessment year 2020-21 and shall apply only to transfer of old residential house made on or after 01.04.2019. Hence, assessee should in this case invest the balance 50 lakhs long-term capital gains in section 54EC bonds within 6 months from date of sale or else he will be liable to pay long-term capital gains tax on balance of ` 50 lakhs.

Merely receiving bayana and entering into agreement for sale doesn’t transfer the house. There is no transfer of the old house until sale deed is executed and/or possession is given to the buyer against balance payment. You can keep execution of sale deed, registry and handing over possession of old house on or after 01.04.2019 so as to be able to avail the benefit in respect of balance capital gains by investing in second house. If possession and sale deed execution is done on or before 31.03.2019, you will not be able to avail the benefit announced in the budget.

In Smt. Madhu Gangwani v. Asstt. CIT [2019] 111 taxmann.com 30/179 ITD 673 (Delhi – Trib.), it was held that where possession of property was handed over to purchaser on full payment of sale consideration and sale deed was executed on 31-3-2009, transfer can be said to have taken place in terms of section 2(47)(v) of the Act in financial year 2008-09 (assessment year 2009-10) though sale deed was registered on 1-4-2009. Section 47 of Registration Act states that registered document shall operate from date of its execution; in view of this, transfer of capital asset completed in preceding assessment year 2009-10, and capital gain tax would be chargeable in assessment year 2009-10. Merely because sale deed dated 31-3-2009 was registered on 1-4-2009, it could not be said that transaction of transfer of capital asset took place in assessment year 2010-11. In the result, capital gain tax would be chargeable in assessment year 2009-10 and not in assessment year 2010-11.

The benefits for once-in-life-time exemption of long-term capital gains upto ` 2 crores from transfer of residential house based on investment in 2 houses in India is applicable with effect from assessment year 2020-21. In other words, transfer of residential house should be made on or after 01.04.2019. Date of transfer is date of possession to buyer or date of registry whichever is earlier. Here, possession and sale deed registry done in buyer’s name prior to 01.04.2019. Therefore, the benefit under the amended provisions of section 54 shall not apply. In the result, assessee will be able to claim deduction in respect of investment in any one house only…obviously he will claim in respect of ` 1.5 cr. house. The balance long-term capital gains of ` 45 lakhs shall be taxable.

In this case, the entire capital gains on ` 1.95 crores shall be tax exempt as cost of investment in two residential houses in India exceeds ` 1.95 crores and both these houses have been purchased within a period of one year before the date of transfer of old house.

Here, the capital gains arising from sale of old residential house exceeds the limit of ` 2 crores. Hence, assessee will get deduction of ` 50,00,000 under section 54EC. He will also be able to deduct cost of one of the two new houses in India bought by him (the one whose cost is higher). The balance long-term capital gains shall be taxable. The limit of ` 2 cr. is with reference to capital gains arising from transfer of old house and not with reference to capital gains chargeable to tax.

Yes. Section 54 is applicable regardless of where the old residential house is situated. Only resultant capital gains must be invested in 2 houses in India.

The ` 2 cr. limit is with reference to capital gains arising from transfer of both houses and not with reference to investment made. In fact, investment should be equal or should exceed the amount of capital gains to avail section 54 benefit.

Yes. If after making investment in both houses still some capital gains not exceeding ` 50 lakhs remain, the same can be invested in section 54EC bonds to avail deduction under that section. Availing the two-house benefit is no bar to availing deduction under other sections.

If splitting of consideration is to be done between house and furniture, ACs, etc., then the splitting up must be justifiable based on proper valuation of the furniture items and house. Tenali Ram, the famous court jester in the Court of Emperor Krishnadevaraya of Vijayanagar empire, promised proceeds from sale of cow to temple of Goddess Kali if he recovered from his ailment. After he recovered, he took his cat and cow to the market and said one gold coin for the cow and 100 gold coins for the cat and it is a package deal. Finally, he found a buyer and he paid to temple one gold coin as “sales proceeds from cow” and said “The hundred gold coins are mine as they are sales proceeds from cat”. Such arbitrary splitting up of values will result in disastrous tax implications. If it turns out that furniture etc. is grossly overvalued at ` 60 lakhs, the amount will be treated as undisclosed income and taxed at 78% under section 115BBE of the Act as held in many judicial decisions besides landing the parties in trouble before stamp valuation authority. This splitting up is simply not advisable.

In this regard the following points have to be kept in mind.

• The Punjab and Haryana High Court in the case of Paramjit Singh v. ITO [2010] 195 Taxman 273 (Punj. & Har.) has made the pertinent observations-

“It is a well-known principle that no oral evidence is admissible once the document contains all the terms and conditions. Sections 91 and 92 of the Indian Evidence Act, 1872 incorporate the aforesaid principle. According to section 91, when terms of a contract, grants or other dispositions of property have been reduced to the form of documents, then no evidence is permissible to be given in proof of any such terms of such grant or disposition of the property except the document itself or the secondary evidence thereof. According to section 92, once the document is tendered in evidence and proved as per the requirements of section 91, then no evidence of any oral agreement or statement would be admissible as between the parties to any such instrument for the purposes of contradicting, varying, adding to or subtracting from its terms. Therefore, it follows that no oral agreement contradicting/varying the terms of a document can be offered. Once the aforesaid principle is clear, then in the instant case, ostensible sale consideration disclosed in the sale deed had to be accepted and it could not be contradicted by adducing any oral evidence. Therefore, the order of the Tribunal did not suffer from any legal infirmity in reaching the conclusion that the amount shown in the registered sale deed was received by the vendors and deserved to be added to the gross income of the assessee.”