A Taxpayer can use any source of funds to buy new house for claiming section 54 deduction: ITAT

 1,732 total views

A Taxpayer can use any source of funds to buy new house for claiming section 54 deduction: ITAT

Whether the capital gain exemption will be available if the assessee purchases the new property with borrowed funds and doesn’t use the funds generated from sale of earlier assets. This is one of the common questions in the mind of the taxpayers.

Denial of exemption is a regular feature during various assessment proceedings. This disallowance has increased in the faceless assessment scheme.

Here was one such issue before Mumbai ITAT in the case referred below:

It may be noted that section 54 just requires purchase and investment. It doesn’t refer to use of the same fund for investment.

The observation of the ITAT would be highly relevant for various taxpayers.

ITAT Mumbai observed as under:

  1. Possession of new house within stipulated 2 years is ‘purchase’ for sec.54,even if not funded by proceeds of old house.
  2. If the assessee has taken possession of the new house within the stipulated 2 years period, assessee is entitled to deduction under section 54 even if the agreement for sale of new house is not registered within the 2 years period.
  1. Such possession is to be taken as purchase of a new house within a 2 years period.
  1. Source of funds used is irrelevant.
  1. Assessee need not prove that the new house was paid for by consideration/capital gains from sale of old house.
  1. Assessee will get deduction even if he paid for it though home loan provided purchase is completed by entering into possession within the stipulated 2 years period.

Leave a Comment

Your email address will not be published.

the taxtalk

online portal for tax news, update, judgment, article, circular, income tax, gst, notification Simplifying the tax and tax laws is the main motto of the team tax talk, solving