Sold house, bought Rs 1.10 crore flat with wife; taxman rejects exemption for half the amount

The taxpayer sold a residential property located in a suburban area of Mumbai and used the proceeds to purchase a new flat in the city, jointly registered in his and his wife's names. Under Indian tax law, a seller can claim exemption from capital‑gain tax if the sale proceeds are reinvested in a residential property within a specified period, as per Section 54F of the Income Tax Act. The couple expected to claim exemption for the full amount of the new flat, assuming the investment satisfied the statutory conditions.

The assessing officer, however, examined the documentation and concluded that only half of the purchase price qualified for exemption. The rationale was that the original property was not a self‑occupied house, and the new flat was registered jointly, meaning only the portion attributable to the seller's share could be considered for relief. Additionally, the officer noted that the taxpayer had not provided evidence that the entire sale amount was reinvested, as required for a full exemption claim. As a result, the remaining amount was treated as taxable capital gain, subject to the applicable rate.

The taxpayer may appeal the assessment by filing a revision petition with the Income Tax Department, presenting additional proof of investment and clarifying ownership details. Tax professionals often advise clients in similar situations to maintain clear records of fund flow and to structure joint purchases carefully to avoid partial denial of benefits. The case highlights the importance of understanding the nuances of capital‑gain exemptions, especially for high‑value property transactions in metropolitan markets like Mumbai.