The Income Tax Appellate Tribunal (ITAT) in Mumbai has upheld the right of a couple to jointly claim tax exemption under Section 54 of the Income Tax Act, allowing a deduction of Rs 1.3 crore.
The case involved the sale of two separate residential properties and the purchase of a joint home—an arrangement the tax authorities initially flagged as a breach of the rules.The tribunal’s judgement, delivered on 17 April 2025, provided a much-needed interpretation of the law that favours honest taxpayers making substantial reinvestments into residential real estate. The dispute arose when a woman declared a long-term capital gain (LTCG) of over Rs 1.3 crore after selling a property in 2011 for Rs 1.9 crore, which she had originally acquired in 2004 for Rs 36.5 lakh. She reinvested her gains into a new residential property jointly purchased with her spouse in 2010 for Rs 2.31 crore. She contributed Rs 1.76 crore, while her husband added Rs 55 lakh—funds he sourced by selling a different property.
Both individuals separately claimed tax exemption under Section 54. However, the income tax department rejected the claim, citing that the exemption had been wrongly availed against the sale of two distinct properties used to fund a single purchase. The issue eventually made its way to the ITAT after years of appeals and scrutiny by various authorities.The Tribunal ruled that the benefit of Section 54 could not be denied simply because the property was purchased in joint ownership. The key criterion, it noted, was the proportion of investment made by each individual. As long as each party claimed exemption only to the extent of their respective investments, the exemption was valid—even if the source of reinvestment was from multiple property sales.
Crucially, the ruling aligns with the pre-2015 interpretation of Section 54, which allowed for such flexibility before the law was amended to tighten exemptions. The Tribunal pointed out that neither the Act nor any judicial precedent bars a co-owner from claiming exemption if their capital gains are reinvested properly and proportionately in a new property.Legal experts are hailing the ruling as a victory for clarity, fairness, and the spirit of the tax law, which aims to incentivise reinvestment in housing rather than penalise co-ownership or minor procedural deviations. Analysts believe this judgement will be particularly useful in metropolitan markets like Mumbai, where high real estate prices often compel families to pool resources under joint ownership.
With rising urban density and shifting household structures, such interpretations can help facilitate equitable housing investments. Taxpayer confidence in such legal clarifications also promotes more transparent property transactions—vital for building sustainable and inclusive urban economies.The ITAT’s directive also asked the assessing officer to confirm that no double exemption was claimed, reinforcing a fair and balanced approach. But the ruling makes clear that co-owners are entitled to tax relief, as long as their claims are rooted in verifiable, individual financial contributions.The Mumbai judgement will likely serve as a precedent for similar disputes in other Indian cities, signalling a progressive shift in how the law interprets ownership, equity, and accountability within the real estate taxation framework.
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Joint Home Purchase Gets Tax Tribunal Nod
