Gift, sale, planning: How one couple paid no tax on ₹3.85 cr capital gains

Gift deeds, registered sale deeds, and transparent banking channels can make even intra-family transfers fully compliant with the law

A couple managed to save nearly ₹3.85 crore in taxes — and did it legally! That’s exactly what happened in a recent case before the Mumbai Income Tax Appellate Tribunal (ITAT). The story shows how smart tax planning and proper documentation can protect wealth that would otherwise go to the taxman. ( Read full details of the case here)

 

The Case in Simple Terms

1. The Beginning (2002)

 

A couple in Mumbai bought two flats:

 

Flat 1 for ₹34 lakh

 

Flat 2 for ₹17 lakh

 

Both were registered in the husband’s name.

 

2. Gift Transfer (2017)

 

In 2017, the husband gifted his share of the two flats to his wife.

 

This was done through a registered gift deed (a legally valid transfer).

 

From this point, the wife became the full legal owner of both flats.

 

3. Sale of Flats (2020)

 

In 2020, the wife sold the two flats for ₹5.98 crore.

 

After indexation (adjusting purchase cost for inflation), the Long-Term Capital Gain (LTCG) came to about ₹4.21 crore.

 

4. Reinvestment (2021)

 

To claim exemption under Section 54 of the Income Tax Act, the wife reinvested the gains.

 

She purchased a new flat in 2021 for ₹3.85 crore.

 

Here’s the twist → the new flat was bought from her husband (he owned a Lodha flat).

 

She paid full consideration through bank transfer, with stamp duty and a registered sale deed.

 

5. Tax Officer’s Objection

 

The Assessing Officer (AO) denied her Section 54 exemption.

 

His reasoning:

 

“This is just rotation of money within the family.”

 

“You can’t buy property from your spouse and claim exemption.”

 

He treated it as a way to evade taxes.

 

If the AO’s view stood, she would have had to pay LTCG tax on ₹3.85 crore — which is a huge tax bill (20% LTCG = about ₹77 lakh + surcharge + cess).

 

6. ITAT Mumbai Ruling (2025)

 

The Income Tax Appellate Tribunal (ITAT), Mumbai sided with the wife.

 

Key points from their ruling:

 

Section 54 does not prohibit buying from a spouse.

 

The wife had full ownership (because of the 2017 gift deed).

 

The new property purchase was genuine: registered sale deed, bank trail, stamp duty paid.

 

Tax law allows exemption as long as reinvestment conditions are met.

 

The Verdict

 

The ITAT ruled in the wife’s favour. Her reinvestment of ₹3.85 crore into her husband’s Lodha flat qualified for Section 54 exemption.

 

 Result:

 

LTCG tax on ₹3.85 crore = NIL

 

The couple saved nearly ₹77–80 lakh in taxes (20% LTCG + surcharge & cess).

 

Key PF lesson, as per Vijay Maheshwari, Certified Wealth Manager:

 

Tax planning ≠ tax evasion → The couple didn’t hide income or fudge numbers. They complied with the law, used gift deeds, and paid stamp duty.

 

Documentation is everything → Proper paperwork (gift deed, sale deed, bank transfers) was the reason the exemption stood firm.

 

Section 54 is powerful → If you reinvest LTCG from selling property into another residential property within timelines, you can legally avoid a huge tax bill.

 

Family transactions can work → As long as conditions are met, even buying from a spouse is valid for tax exemption.

 

Bottom Line

 

This Mumbai case is a masterclass in how compliance + planning = big savings. For anyone selling property, it’s worth remembering:

 

Don’t dismiss gift deeds. They can simplify ownership transfer within family.

 

Always reinvest through proper channels. Bank trail + registered deed is your shield.

 

Think long-term. A little planning before sale can legally save you crores in taxes.

 

Or as the ITAT’s verdict shows: Smart compliance protects wealth.