Deduction u/s 54F not deniable on ground of pre-owning of residential house in foreign

Section 54F of the Income Tax Act, which deals with the exemption of capital gains arising from the sale of a long-term asset used for residential purposes.

Section 54F of the Income Tax Act provides that if an individual or Hindu Undivided Family (HUF) sells a long-term asset other than a residential house and invests the sale proceeds in purchasing or constructing a residential house property, then the capital gains arising from the sale of the long-term asset are exempt from tax to the extent of the investment made in the residential house property.

There have been cases where taxpayers owning a residential house property in a foreign country have been denied the exemption under Section 54F of the Income Tax Act on the ground that they already own a residential house property. However, in a recent ruling by the Income Tax Appellate Tribunal (ITAT) in India, it was held that owning a residential house in a foreign country cannot be a ground for denying the exemption under Section 54F of the Income Tax Act.

The ITAT held that the provisions of the Income Tax Act do not prohibit a taxpayer from owning a residential house in a foreign country while claiming the exemption under Section 54F of the Income Tax Act. The key factor to consider is whether the taxpayer has invested the sale proceeds in purchasing or constructing a residential house property in India within the specified time period.

The exemption under Section 54F of the Income Tax Act is available to an individual or an HUF, and it can be claimed only if certain conditions are met. Some of these conditions are:

The asset sold must be a long-term asset other than a residential house.
The amount of capital gains arising from the sale of the asset must be invested in purchasing or constructing a residential house property within a specified time period.
The residential house property must be purchased either one year before or two years after the sale of the asset, or it must be constructed within three years from the date of sale of the asset.
The taxpayer should not own more than one residential house property, other than the one that is being purchased or constructed using the sale proceeds.
The residential house property purchased or constructed should not be sold within three years from the date of its purchase or construction.

It's important to note that the exemption under Section 54F of the Income Tax Act is subject to certain limitations. For example, if the amount invested in purchasing or constructing the residential house property is less than the capital gains arising from the sale of the asset, then the exemption is limited to the amount invested.

Also, if the taxpayer sells the residential house property within three years from the date of its purchase or construction, then the amount of exemption claimed under Section 54F of the Income Tax Act is added to the taxpayer's income in the year in which the residential house property is sold.

Therefore, taxpayers who are planning to claim the exemption under Section 54F of the Income Tax Act should carefully consider the conditions and limitations associated with the provision and consult a qualified tax expert for advice.

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