Income tax exemption under section 54
In Mumbai, a woman was gifted two houses by her husband, which after a few years the woman sold out for Rs 6 crore, even after this, the woman did not have to pay any income tax on this amount. Now you must be feeling that under which rule of income tax this woman has been exempted, then you do not have to worry, because here we are telling you in detail about this whole matter.
Buy houses for 34 and 17 lakhs
In 2002, the woman’s husband bought these two houses in Mumbai for Rs 34 lakh and Rs 17 lakh, which was sold by the woman for Rs 6 crore in 2020. According to the tax rules, after the indexation (inflation adjustment) he got a long -term capital gains of about Rs 4 crore. But despite this, he did not levy any tax, because he put all the money from her husband to buy a new house and claimed a tax exemption under section 54. In this case, the woman also won the tax appeal in ITAT (Income Tax Appellate Tribunal) Mumbai.
How to save income tax
Although it seems strange to hear, but all the transactions of the woman were completely legal and she also filled the entire stamp duty on property deals. Income Tax Officer (AO) said that because the house belonged to the husband, according to the clubbing provisions, the benefit of selling property will be considered as income of the husband. AO said, no person can buy his own house and take a discount under section 54.
Apart from this, AO raised 6 more objections that the woman should pay tax on selling property worth 6 crore. An objection was about where the money came from for the flats. AO saw the bank statement of the husband and wife and found that the woman received Rs 70 lakh from a company on 12 March 2021, in which both are husband and wife directors. On the same day, she transferred 70 lakh rupees to her husband. Then on the same day, the husband transferred the same 70 lakhs to the company in which both of them are directors.
AO said, similarly on 12 March 2021, only 3 crore rupees (1.5-1.5 crore in two parts) were also rotated. That means money came out of the company and returned to the company by turning around in a single day. This is just a rotation of money so that tax can be avoided. Money did not go anywhere in real, only the title of property changed on paper.
ITAT rejected appeals
ITAT Mumbai rejected the objections of AO and said that the woman would not have to pay any tax on a capital gain of 4 crores as she correctly claimed a discount under Section 54. On the money winding, ITAT said that AO only saw the transactions of March 12, 2021, but did not see the transactions before that, where the woman had kept the money in a fixed deposit or company and later gave the same money to the husband to buy the house. This was completely correct according to the rules of section 54.
How did the matter begin?
According to the order of ITAT Mumbai on 9 June 2025, the timeline of the incidents was something like this:
- March 14, 2002: Wife bought two flats at Hiranandani Gardens in Powai, Mumbai for Rs 34 lakh and Rs 17 lakh.
- 27 March 2015: Husband bought a new house in Lodha Esthela in his name.
- 1 April 2017: Husband gave his 50% stake in Hiranandani’s flat to his wife from gift deed.
- 9 January 2020: Wife sold both flats of Hiranandani Gardens for Rs 5.98 crore. He took out a LTCG of Rs 4.2 crore and claimed a tax exemption of Rs 3.85 crore under section 54.
- 18 March 2021: The woman bought the house of Lodha Estella from her husband with the same money and took a tax exemption.
What did ITAT Mumbai say?
AO tried to dismiss the exemption on a total of 6 grounds. Itat said:
- On the sale of houses: Wife introduced the agreement to sell flats and gift deeds correctly. All the money came to the wife’s account and shown in tax.
- New house purchase: The new house was purchased from the husband and stamp duty was also filled for this. There was no disturbance in it.
- Money rotation: AO saw only one day transaction, while in real the woman had already deposited money. Within two years of selling the house, the rules of buying a new house were completed correctly.
- Finally order: AO was told that the wife should be given a discount of section 54.
What does section 54 say?
According to CA Suresh Surana, if a person sells a house and builds a new residential house after 1 year or 2 years or in 3 years, then LTCG tax can be exempted. This exemption will be available on only one house at a time (if LTCG up to 2 crores, then one can also be found on two houses once in life).