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In the latest development, ITAT i.e. Income-Tax Appellate Tribunal’s Mumbai bench denied the tax benefits to the taxpayers when the long-term capital gain is earned from the sale of a residential property and is invested in the purchase of a new home.

The Court denied this benefit in case the taxpayer buys the property in the name of his wife and daughters [above 18 years of age]. The Mumbai bench followed the Bombay High Court’s decision and said that the taxpayer has to own the property or atleast his/her name should be there in the property title.

In one of the similar case, Delhi High Court gave a verdict in taxpayer’s favour.

According to the Income Tax Act’s Section 54, a taxpayer gets two year- time from the sale date of a property to invest the long-term capital gains earned from the same in a new house to avail the tax benefit.

According to a leading financial expert, the taxpayers falling under the jurisdiction of the Bombay high court must stay alert in order to avoid tax litigation. A taxpayer can avail proportionate deduction only if he/she add his/her name in the property title along with wife’s or daughter’s name. The taxpayer is eligible for the tax benefit of one –third of the cost of a new home if the property is registered in the joint name of a spouse or a child.

As per the Income Tax Act, the long-term capital gain is the amount that a taxpayer earns from the profit by selling a residential house owned for a minimum period of two years. This long-term capital gain is taxable at 20% which is calculated according to the inflation and is referred to as indexation benefit.

A taxpayer can minimize the taxable amount by investing the long-term capital gain in a purchase of another residential property in India but within a particular period.

This decision came after the ITAT heard a case recently in which the petitioner did not offer the taxable amount on the capital gain made by him after selling the residential property which was jointly owned by him and his wife. In return to which the Income Tax authority assessed 50% of the LTGC from him against which he filed a petition but the same was rejected under Section 54.