Anurag kesharwani
In a recent ruling, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that capital gain exemption is not available for a residential house purchased abroad after April 1, 2015. This decision has significant implications for individuals who own residential properties overseas and are looking to claim tax exemptions under Section 54F of the Income Tax Act.
Understanding the ITAT’s Ruling
The ITAT, consisting of N. K. Choudhry (Judicial Member) and Prashant Maharishi (Accountant Member), made this important determination regarding capital gain exemptions. They noted that prior to the Assessment Year (AY) 2015-16 or before the introduction of the phrase “in India” in Section 54 of the Act through Finance Act No. 2 of 2014, individuals could claim deductions under Section 54F for properties purchased or constructed abroad or outside India. However, this changed after April 1, 2015.
Case in Point: Khalid Sayed Versus Centralized Processing Centre
To illustrate this ruling, let’s take a look at the case of Mr. Khalid Sayed. Mr. Sayed and his wife jointly owned a property in Mumbai, which they purchased on October 29, 2003, for a consideration of Rs. 25,30,020. Subsequently, they migrated to Canada and sold the flat. During the sale, Mr. Sayed deducted tax at source amounting to Rs. 10,68,000.
After selling their Mumbai property, Mr. Sayed purchased a residential property in Canada for $775,000. He remitted the entire long-term capital gain (excluding TDS) to the seller’s account in Canada. To finance the rest of the consideration, he obtained financing from Canada Street Capital Finance Corporation.
The Tax Controversy
However, the assessing officer (AO) disallowed this amount, leading to an appeal by Mr. Sayed. His argument was based on the fact that prior to AY 2015-16, there were no restrictions on the purchase of property in or outside India for claiming exemption under Section 54. The restriction limiting it to “one residential house in India” was introduced via the Finance Act, 2014, with effect from April 1, 2015. Mr. Sayed sold his original property on July 19, 2013, and purchased the property in Canada on July 31, 2013, in foreign currency. Therefore, he believed he should not be subjected to the restriction introduced on April 1, 2015.
The ITAT’s Decision
The tribunal, in its judgment, considered Mr. Sayed’s case carefully. They determined that since Mr. Sayed purchased the property in a foreign country on July 31, 2013, and claimed the benefit of Section 54F of the Income Tax Act during AY 2014–15, he was eligible for the exemption.
This decision provides clarity and a way for individuals like Mr. Sayed to benefit from the provisions of Section 54F. It underscores the importance of understanding the specific timeline of property purchases and the relevant tax laws.
Conclusion
In summary, the ITAT’s ruling regarding the availability of capital gain exemption for residential houses purchased abroad after April 1, 2015, has significant implications for taxpayers. It clarifies the eligibility criteria for claiming exemptions under Section 54F of the Income Tax Act, depending on the purchase date of the property and the timeline of relevant tax law amendments.
FAQs
- Can I claim capital gain exemption for a property purchased abroad after April 1, 2015?
- No, according to the ITAT’s ruling, capital gain exemption is not available for residential houses purchased abroad after April 1, 2015.
- What if I purchased the property before April 1, 2015, and sold it later?
- If the property was purchased before April 1, 2015, and you meet the other criteria, you may still be eligible for capital gain exemption.
- Are there any exceptions to this rule?
- The ruling does not mention any exceptions, but it’s advisable to consult with a tax expert for specific cases.
- How does this ruling impact NRIs (Non-Resident Indians)?
- NRIs should also be aware of this ruling, as it affects their eligibility for capital gain exemption on properties purchased abroad.
