How you can sell multiple long-term assets and also claim tax deductions

Even if you sell long-term assets in different financial years and invest in one residence, Section 54F benefit will still apply

When an individual is taking the benefit under Section 54F of the Income-Tax (I-T) Act, he can sell multiple long-term assets and also claim tax deductions in more than one Assessment Year (AY), depending on when the assets were sold.

The Delhi Bench of I-T Appellate Tribunal (ITAT) recently held that a taxpayer cannot be denied the benefit only because he sold multiple assets in different financial years, while meeting other conditions mentioned in the law.

Section 54F allows taxpayers to sell long-term capital assets, other than a house property, and use the proceeds to buy a new house to save tax. Long-term capital assets include equity investments, debt mutual fund investments, gold, jewellery, bonds, a plot, commercial property, and so on.

“Earlier, there was no restriction on an individual selling one long-term asset and buying multiple house properties anywhere in the world or selling multiple long-term assets and investing in one house. The law was later amended, and it now says that the investment has to be in a single house located in India,” says Naveen Wadhwa, a chartered accountant with Taxmann.com. He points out that there’s no restriction in the law on selling multiple long-term assets and using the proceeds to buy a new house.

In the case that went to the Delhi Bench, the taxpayer had claimed capital gains deductions under Section 54F in the AY 2011-12 and 2012-13 towards purchasing a single property by selling two different plots in different years. During assessment proceedings, the tax officer concluded that the taxpayer could not claim double deduction towards investment of sale proceeds arising out of two different assets in two different AYs, against the purchase of same residential property.

The tax officer contention was that since the purchase could happen only once, which happened in January 2011, the same benefit cannot be extended to the second property in another AY, and so the benefit was denied. But the tribunal ruled in favour of the taxpayer.

Tax experts say that litigation under Section 54F, which deals with capital gains exemption, are common for individual taxpayers. “The section has beneficial provisions. Most tribunals allow individuals to get the exemptions stated in it when there’s a grey area, provided the taxpayers have fulfilled all other conditions mandated by the law,” says Arvind Rao, chartered accountant and founder of Arvind Rao & Associates.
 

Rao points out another case. A doctor sold multiple properties and used the proceeds in a new house. He had claimed depreciation on one of the commercial properties he sold as he was using it as his clinic. The assessing officer disallowed it. According to rules, the sale proceeds of any asset on which a taxpayer claims depreciation is treated as short-term capital gains. The tax tribunal, however, allowed the doctor to take the benefit.