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Questions about capital gain tax exemption
Source : The Hindu Property Plus Published On : 2007-12-08 City : Chennai

Capital gains tax in respect of a residential property is the tax levied on any profit or gain arisingfrom the transfer of the immovable property. This will be applicable only in cases when the period of holding is more than three years.


As per provisions of the section 54 of the IT Act, the longterm capital gain arises to an assessee , an individual or Hindu undived family , from the sale of a residential house .


If the entire gain is invested within a stipulated time in a residential house , the tax exempted


There have been questions as to whether the reinvestment can be made in more than one property to get the tax exemption. One argument is that the Act has not used the expression residential house or houses to include or mean more than one unit . The other argument is that a house can contain more than one residential unit and yet it can be called a residential house. If the intention of the Act was to restrict the deduction for one house then instead of using the word house , the word one house could have been used.


The Mumbai bench of the IT Appellate Tribunal in the case of Mrs. Gulshanbanoo R.Mukhi vs Joint CIT ( (2003) 78 TTJ786) Mumbai held in favour of the interpretation of the ternm house’ as meaning one property.


In the case of Ratanlal Muraaka (ITA No 4485 Mumbai 1999 reported in BCAJ 2003) the assessee had purchased one house at Pune and the other at Thane by investing within the specified period.


In this case the capital gains tax exemption was extended to both the houses. The expression ‘residential house’ in section 54(1) was held to include two houses.


Confusion prevails as to how the section has to be interpreted.The government can quickly clarify this in public interest. Until this is clarified, some experts suggest depositing the excess amount after deducting the cost of acquisition in one unit of residence, if any in specified bonds.


From April 1,2007 , the amount to be deposited to claim exemption is restricted to Rs.50 lakhs.



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