Capital Gains Tax Planning—Gift Residential Building(s) to Wife and Children Before Accrual of LongTerm Capital Gain from Other Assets for Availing Exemption Under Section 54F

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The Tax Publishers Income Tax--Capital Gains Tax Planning--Gift Residential Building(s) to Wife and Children Before Accrual of Long-Term Capital Gain from Other Assets for Availing Exemption Under Section 54F V.K. Subramani The present write-up deals with an issue as to whether an assessee can claim exemption under section 54F for the capital gain on sale of vacant land when his spouse owned a property gifted by him and owned another house property for which exemption under section 54 was allowed. The decision rendered by the Karnataka High Court while dealing with the impugned issue provides a planning idea while transferring a capital asset with a view to availing of exemption under section 54F. Capital gain taxation has undergone radical change due to amendments to legal provisions brought in by the Finance (No.2) Act, 2024. Section 112 prescribing tax on long-term capital gain provides differential rates of 12.5% and 20% respectively in respect of long-term capital assets transferred after the cut off date viz. 23-7-2024. Section 112A which provides the rate of tax in respect of long-term capital asset being in equity share in a company or a unit of an equity-oriented fund or a unit of a business trust also provides such differential rate of tax. Further in respect of STT paid equity shares etc the threshold limit for long-term capital gain tax computation has been enhanced to Rs.1,25,000 as against the previous limit of Rs.1,00,000. Section 112 meant for other capital assets (not being STT paid equity shares) provides for computing the capital gains tax liability with and without indexation and where the tax liability without indexation exceeds the tax liability with indexation, then such excess shall be ignored vide further proviso to section 112(1)(a) and it is meant only for resident individual and HUF taxpayers. This refresher takes note of section 54 and section 54F where a taxpayer could gift residential properties to spouse for the purpose of availing the exemption under section 54F arising due to transfer of any other long-term capital asset. 1.1 Antony Parakal Kurian's case The assessee in Antony Parakal Kurian's case 2022 TaxPub(DT) 690 (Karn-HC) : (2022) 442 ITR 38 had a vacant land in Kerala which was sold for Rs.60 lakhs on 10-4-2012 and claimed exemption for the long-term capital gain arising therefrom under section 54F of the Act. The assessee also had a residential property in the same place which was transferred subsequently and for which exemption under section 54 was claimed. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Capital Gains

Tax Planning--Gift Residential Building(s) to Wife and Children Before Accrual of Long-Term Capital Gain from Other Assets for Availing Exemption Under Section 54F

V.K. Subramani

The present write-up deals with an issue as to whether an assessee can claim exemption under section 54F for the capital gain on sale of vacant land when his spouse owned a property gifted by him and owned another house property for which exemption under section 54 was allowed. The decision rendered by the Karnataka High Court while dealing with the impugned issue provides a planning idea while transferring a capital asset with a view to availing of exemption under section 54F.

Capital gain taxation has undergone radical change due to amendments to legal provisions brought in by the Finance (No.2) Act, 2024. Section 112 prescribing tax on long-term capital gain provides differential rates of 12.5% and 20% respectively in respect of long-term capital assets transferred after the cut off date viz. 23-7-2024. Section 112A which provides the rate of tax in respect of long-term capital asset being in equity share in a company or a unit of an equity-oriented fund or a unit of a business trust also provides such differential rate of tax. Further in respect of STT paid equity shares etc the threshold limit for long-term capital gain tax computation has been enhanced to Rs.1,25,000 as against the previous limit of Rs.1,00,000.

Section 112 meant for other capital assets (not being STT paid equity shares) provides for computing the capital gains tax liability with and without indexation and where the tax liability without indexation exceeds the tax liability with indexation, then such excess shall be ignored vide further proviso to section 112(1)(a) and it is meant only for resident individual and HUF taxpayers.

This refresher takes note of section 54 and section 54F where a taxpayer could gift residential properties to spouse for the purpose of availing the exemption under section 54F arising due to transfer of any other long-term capital asset.

1.1 Antony Parakal Kurian's case

The assessee in Antony Parakal Kurian's case 2022 TaxPub(DT) 690 (Karn-HC) : (2022) 442 ITR 38 had a vacant land in Kerala which was sold for Rs.60 lakhs on 10-4-2012 and claimed exemption for the long-term capital gain arising therefrom under section 54F of the Act. The assessee also had a residential property in the same place which was transferred subsequently and for which exemption under section 54 was claimed.