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Long-Term Capital Gains Tax: Exemption On Buying Multiple Houses

15 Aug 2016

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Long-Term Capital Gains Tax: Exemption On Buying Multiple HousesAs per Income Tax laws in India, an Indian citizen can avail benefit of exemption from long-term capital gains tax on sale of a property or any other asset, as long as the income from the sale is used to purchase a residential house.


The law, however is not very comprehensive and thus puts forward many questions on how it can benefit individuals deciding to buy multiple residential houses. 


According to the existing provisions contained in section 54 (sale of residential property) & 54F (sale of properties other than a residential one) where capital gain arises from transfer of a long-term capital asset, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer, constructs a residential house, the amount of capital gains to the extent invested in the new residential house is not chargeable by tax.


Earlier, taxpayers understood the term ‘a residential house’ as a property being used for residential purpose, which could be many in number - thereby claiming long-term capital gains tax exemption by investing in more than one residential house. However, the IT Act amended its section 54 and section 54F to clarify that the exemption is available if the investment is made in one residential house situated in India. These amendments took effect from 1st April, 2015.


Tax payers can invest in more than one house and still claim tax exemption. If the assessee has purchased more than one residential house situated in different locations, he can claim exemption for one house only. However, the taxpayer would be entitled to exemption on more than one unit if the two units are converted into one residential house.


Authored by Goel Ganga Developments, a premium real estate developer offering residential flat in Pune for real estate investment in Pune.

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