If you are planning to sell your property in India, the Capital Gains Tax can eat into a big part of your profits. However, the Income Tax Act, 1961 provides several exemptions that can help you reduce or even eliminate tax liability—if used smartly.
In this article, we will explain how one couple legally saved ₹85 lakh in tax on a ₹4.21 crore capital gain by using Section 47 and Section 54 of the Income Tax Act.
What is Capital Gains Tax on Property in India?
When you sell a property, the profit you make is called Capital Gain.
If held less than 24 months → Short-Term Capital Gain (STCG), taxed as per income slab.
If held 24 months or more → Long-Term Capital Gain (LTCG), taxed at 20% with indexation (plus surcharge & cess).and now 12.5% without indexation (plus surcharge & cess)
Example:
If you bought a flat for ₹50 lakh and sold it for ₹2 crore after 10 years, your indexed cost may be ~₹90 lakh. Profit = ₹1.1 crore → LTCG = taxed @ 20% = ₹22 lakh approx. And now LTCG 1.5cr and tax 12.5% 1875000 plus sc plus education cess.
Case Study: 4.21 Cr Capital Gain, Zero Tax
Timeline of Events
2002 → Couple jointly buys 2 flats in Powai (₹34 lakh + ₹17 lakh).2015 → Husband buys Lodha Estrella flat in his sole name.
2015 → Husband buys Lodha Estrella flat in his sole name.
2017 → Husband gifts his share of Powai flats to wife (Gift Deed).
2020 → Wife sells both Powai flats for ₹5.98 crore. Indexed cost = ~₹1.77 crore.
→ Capital Gain = ₹4.21 crore.
2021 → Within 2 years, wife buys Lodha Estrella flat from husband via registered sale deed.
✅ Net result → ₹4.21 crore LTCG completely exempt from tax.
⚖️ Tax Provisions Used in This Case
1. Gift Between Spouses – Section 47
Transfer of property between husband and wife out of love & affection is not treated as transfer.
Hence, no capital gains tax when husband gifted his share in 2017.
2. Capital Gain on Sale – Section 45 & Section 112
Wife sold the flats in 2020.
LTCG = ₹4.21 crore.
Normal tax would have been 20% = ₹85 lakh (plus cess).
3. Exemption on Reinvestment – Section 54
If LTCG arises from sale of a residential house, exemption is available if:
New house purchased within 2 years (or constructed within 3 years).
Capital gains invested in new property.
In this case:
Wife invested full ₹4.21 crore in Lodha Estrella flat.
Purchase was from her husband, but law does not restrict buying from spouse.
✅ Therefore, entire LTCG exempt u/s 54.
易 Key Lessons From This Case
1. Gifting to spouse is tax-free under Section 47.
2. Section 54 exemption allows complete tax relief if you reinvest in residential property.
3. Buying from spouse or relative is permitted, as long as it is a genuine registered sale.
4. Proper documentation (Gift Deed, Sale Deed, payment proof) is critical.
5. This couple legally saved nearly ₹90 lakh in tax.
⚠️ Important Things to Remember
If the new property is sold within 3 years, exemption will be withdrawn.
If you cannot invest immediately, deposit gains in a Capital Gains Account Scheme (CGAS) before filing ITR.
Always consult a Chartered Accountant before large property transactions.
FAQs on Capital Gains Tax in India
Q1. Can I buy a new property in my spouse’s name to claim Section 54 exemption?
Yes, as long as the investment is made by the assessee and the new house is purchased in own/spouse’s name, exemption is allowed.
Q2. Can I buy a property from my husband/wife to save tax?
Yes, Section 54 does not restrict purchase from relatives. But the transaction must be genuine with actual consideration.
Q3. How many times can I claim exemption under Section 54?
Multiple times, as long as each sale is followed by a valid reinvestment within timelines.
Q4. What if I invest only part of the capital gain?
Exemption will be available only to the extent of amount invested.
Q5. Can I claim exemption if I own more than one house already?
Yes, but from AY 2020-21, exemption is restricted to one residential property.
✅ Conclusion
This case study shows how smart planning using Section 47 (Gift Transfer) and Section 54 (Reinvestment Exemption) can help you save lakhs of rupees in taxes—legally.
If you are planning to sell property, don’t wait until after the sale to think about tax. With the right strategy, you can turn a tax liability into zero tax—just like this couple did.
Pro Tip: Always work with a CA or tax expert to structure property transactions properly. One smart move can save you lakhs in taxes.
CA Bhavesh Panpaliya 8888755557