Section 54F provides deduction in respect of capital gain arising from the sale of any long term capital asset. The deduction is provided for the cost of new residential house purchased, to the extent of capital gain. Generally confusion prevails among taxpayers, whether the residential property should be owned in the assessee’s name or not to claim the deduction.

When deduction is available?

In this regard, it is very important to understand that in order to claim exemption under this section, the assessee should own the house property in his own name. However even if the land on which the house is being constructed is owned in the name of spouse, exemption under Section 54F will be available as the ownership of the house is important and not the land on which it is constructed.

Interpretation

It can also be interpreted that for the purpose of capital gains, land and building both are considered as separate capital asset and to avail the benefit of exemption, the assessee must own the house. However it is strictly interpreted in Section 54 that the assessee should purchase house in his own name. But contradictory rulings have been made by the department wherein exemption has been allowed to the assessee for investment in the sole/joint name with spouse under section 54

Due to lack of CBDT circular regarding this issue, it often leads to complications with respect to Section 54. The provisions of Section 54 and 54F should not be correlated while claiming deduction for the purchase of the new residential house.

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