Can you get exemption U/s 54 or 54F if house is taken on Lease?

Q. I am about to purchase a part of house in rural Himahcal Pradesh out of my long term capital proceeds. But as per the local by laws outsiders of Himachal cannot purchase such property in rural area... Only via media is that I get the same on perpetual lease (or 99 year lease). My question is weather the investment in the said house and expenses on construction the same to make it livable on the said leased property is allowable under 54F of the income tax act.

Ans. Section 54F states that if sales consideration of any long term capital asset other than residential house is utilised for purchase or construction of a residential house, the exemption from tax is to the extent the sale consideration is used for such purchase. The issue is whether the taking lease of 99 years constitute "purchase" for the purpose of section 54F.
Section 54F is for the benefit of the assessee.
The issue whether the house purchased on ‘lease’ constitute "purchase" for the purpose of section 54 was decided in Guwahati High Court in case of CIT v. Rajesh Kumar Jalan. The court held the decision in favour of assessee.

Therefore, in my opinion, a lease-hold right on house property is in all practical sense has been transferred to you for 99 years, lease is as good as purchase and accordingly the claim of exemption u/s 54 or 54F will be valid.


Popular posts from this blog

Proof of Leave Travel Allowance

Interest on borrowed fund for self-occupied property

Must components in your Salary to minimize Income Tax