LTCG exemption will be withdrawn if the new house is transferred within 3 years

LTCG exemption will be withdrawn if the new house is transferred within 3 years


Query 1]

I read your article in The Hitavada Dated 17/04/2017 about JV & have question pertaining Joint venture between land owner and developers. I have also entered in to an agreement with the builder who would be constructing 8 flats wherein builder would be retaining 5 flats & I would be getting 3 flats. I am a senior citizen belonging to Muslim community having 2 sons. Out of my 3 flats, I would like to sell off 1 flat and remaining 2 flats I want to gift to my sons, one flat each through Heeba (Muslim Law). My JV Agreement took place in August’2016. My question is what would be the tax implications in my case? How much tax liability would arise in this financial year as RR of 1 flat is around Rs. 70 lakh which I propose to sell? I have not taken any money from the builder and have received only 3 flats as my consideration. Should I first claim exemption under Section 54F as suggested by you in you in your said column by showing 2 flats as one as both flats are on same floor and then gift them to my sons through heeba or should I directly transfer 1 flat each  to my two sons? Do I need to pay tax on 2 flats which I propose to gift to my 2 sons through Heeba? I am told that if I gift the flat within 3 years then I would be required then capital gain exemption would be withdrawn back. Please advice.

[Mohammed Ibrahim-]



  • New simplified mechanism for individual/HUF to levy income tax on the Joint Development agreement (JDA) is recently incorporated in the Income Tax Act-1961 as a result of which capital gain tax liability arises in the year in which the development is completed. However, the new mechanism is applicable on the JDA signed on or after 01.04.2017 & the same was covered at length in the Tax Talk dated 20/03/2017.
  • Your JDA is executed in August’-2016 & so it would be governed by the old taxing provision which was well elaborated in the Tax Talk Dated 17/04/2017. In your case, if you have given broadly unconditional & absolute possession of the property to the builder for development then capital gain tax liability would trigger in the FY 2016-17. In such case, you would be required to incorporate the same in the ITR for the FY 2016-17.However, you can claim an exemption u/s 54 or U/s 54F against “one” flat you are getting back from the builder if it is within prescribed time frame.
  • Exemption u/s 54 or 54F is available only against investment in “one” house property. If you are able to substantiate that the two flats are capable of being used as “one” house property then, subject to certain probable litigation at the assessment level, you can claim an exemption. Since, you intend to sale 1 flat, you can consider of claiming an exemption only against “one house” (or two flat capable of being used as one house property). However, if both the flats that you would be getting back are not capable of being used as “one” house property then exemption cannot be claimed in respect 2 flats simultaneously. [The issue of two flats which could be considered as one flat was discussed in length in the Tax Talk dated 24/10/2016. It can be retrieved].
  • Tax liability and quantum of exemption would depend upon various other factors & cannot be worked out in isolation.
  • Once an exemption u/s 54 or 54F is claimed towards purchase/construction of new house property then such new house property need not be transferred within a period of 3 years. If the new assets is transferred within a period of 3 year then exemption allowed earlier would be withdrawn. However, gift (through heeba or otherwise) is not considered as “transfer” as a result of specific exclusion provided in section 47 of the Income Tax Act-1961. So, even if the huse property against which exemption is claimed u/s 54F is transferred via gift within a period of 3 years, still the exemption would not be withdrawn. However, if you are claiming an exemption against both the new flats treating it as “one” house property & thereafter gifting the said flats to your 2 sons individually, it would mean that you never intend to use the two separate unit as “one” unit and could result in denial of your exemption claim.

Above advice & opinion is based on the basis of information provided in the query & on the basis of certain set of presumptions. Generalized reply may not be possible in such cases. Above discussion would certainly help you and other readers to give glimpse of the tax implications involved. In view of the complexity of law & heavy stake involved, readers are advised to obtain individual professional advice before filing their income tax returns.

Query 2]

Your article “All about tax benefits on Education Loan” published in the Hitavada yesterday was indeed enlightening. In Para 8, you have mentioned that, for claiming deduction u/s 80E towards education loan, there is no condition that the course should be done in India. Is the same condition applicable for deduction under 80C for the tuition fee paid for son’s education abroad? If not, isn’t there a discrimination between 80 E & 80C while dealing with the same subject? [Rajan Mannil-]


Deduction u/s 80C is also available towards the payment of the tuition fees, subject to the overall cap of Rs. 1.50 Lacs. However, it is admissible only against the payment of tuition fees to university, college or school or other educational institutions situated within India & it is for the purpose of full time education of any two children of the individual. It may be noted that only tuition fees is eligible for deduction and no deduction is available towards the payment of development fee, donation or payment of similar nature. Section 80E provides for deduction towards education loan taken for higher education. HUF cannot claim deduction by making the repayment of the loan taken for education of its members.


Deduction U/s 80E is available only against the interest on loan taken for higher education. Education Loan could be availed not only for college fees but can also include amount towards incidental & ancillary expense like hostel, meals expenses, transportation etc. Unlike 80C, there is no condition u/s 80E that the course should be done in India. The higher education means any course of study pursued after passing senior secondary examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authorized authority.


The distinction between section 80C & 80E appears to be intended. Considering the importance of higher studies, facility & infrastructure, deduction u/s 80E is extended to even education pursued abroad. The same significance probably is not considered necessary by the legislature for deduction u/s 80C towards tuition fees.