No tax for selling house for Rs 53L

Mr. Kumar, a resident of Rajouri Garden, Delhi, recently sold his property in Paschim Vihar for Rs 53 lakh without paying any income tax. He utilized the long-term capital gain (LTCG) from the deal to construct a house in Tilak Nagar and claimed Section 54 tax exemption when filing his income tax return (ITR). The property was originally purchased in July 2005 for Rs 6.48 lakh, and it was sold in October 2013, resulting in a long-term capital gain (LTCG).

Kumar stated that he was aware of the provisions under Section 54, which allows individuals to reinvest LTCG from the sale of a residential property to purchase or construct a new property within a specified period. To claim this tax exemption, he had to reinvest the capital gains in a new residential house property situated in India within the prescribed timelines, either by purchasing a new house within one year before or two years after the transfer date or constructing a new house within three years from the transfer date.

However, Kumar started constructing the Tilak Nagar house one year earlier than the sale of the Paschim Vihar house. Consequently, the Income Tax Department deemed Kumar's actions as a mistake, leading to the denial of Section 54 tax exemption and the treatment of the entire sale consideration as Short-Term Capital Gain (STCG). Despite this outcome, Kumar challenged the decision, and after several appeals, he won his case in the Income Tax Appellate Tribunal (ITAT) Delhi on August 3, 2026.

The ITAT Delhi ruled in Kumar's favor by asserting that the Section 148 tax notice issued by the Income Tax Department was time-barred due to a limitation period, rendering the consequential re-assessment order invalid.