This simple property move helped save ₹12.7 lakh tax, even with 2 jointly owned flats

A recent income tax tribunal ruling has clarified that owning two jointly held flats does not automatically disqualify a taxpayer from claiming Section 54F exemption, cutting a potential tax bill by ₹12.7 lakh.

In a case concerning the 2013–14 assessment year, a taxpayer sold property for ₹64 lakh, generating a long-term capital gain (LTCG) of ₹61,65,546 after deducting the acquisition cost. 

The entire gain was invested in a new residential property, and a full exemption under Section 54F of the Income-tax Act was claimed.

The Income Tax Department rejected the claim, citing the “two-house condition” under Section 54F, which bars the exemption if the taxpayer owns more than one other residential property on the date of transfer. 

According to the department, the taxpayer’s joint ownership of two other flats meant disqualification, resulting in a calculated tax demand of ₹12,80,123, including cess.

The matter went before the Income Tax Appellate Tribunal, which held that Section 54F applies only when the assessee has full ownership of more than one house. Since the other properties were jointly owned, the tribunal ruled there was no violation. 

This decision reinstated the ₹61,65,546 exemption, reducing the tax payable to ₹10,021 — a saving of ₹12.7 lakh.

Sujit Bangar, founder of TaxBuddy, wrote on X that the ruling reinforces the principle that “joint ownership ≠ disqualification” for Section 54F benefits. He stressed the importance of understanding the precise definition of “ownership” in tax law, especially when holding property shares with family members.

Section 54F allows individuals to avoid LTCG tax by investing the net sale proceeds from a long-term capital asset (other than a residential house) into a new residential property, provided they do not fully own more than one other house on the date of transfer. This tribunal ruling offers relief to taxpayers who hold partial stakes in multiple properties.