Smart wife sells ₹6 crore house, pays zero tax! Husband shocked, even Income Tax Dept left speechless

Imagine, if someone sold his house for Rs 6 crore and still did not have to pay even a single rupee in tax, would you believe it? But this is the true story of a woman who not only surprised the Income Tax Department but also surprised her husband.

Imagine, if someone sold his house for Rs 6 crore and still did not have to pay even a single rupee in tax, would you believe it? But this is the true story of a woman who not only surprised the Income Tax Department but also surprised her husband. The wife's tax planning and legal understanding was so good that ITAT Mumbai also justified her arguments and waived the tax.

In this case, the woman had bought two flats in a posh area of Mumbai in 2002, which were priced at Rs 34 lakh and Rs 17 lakh respectively. Over time, the property prices skyrocketed and in January 2020, these flats were sold for around Rs 6 crore. Obviously, the long-term capital gain (LTCG) on such a huge sale was around Rs 4.21 crore, but here comes the twist.

According to popular belief, this capital gain attracts heavy tax, but the woman claimed exemption under Section 54 of the Income Tax Act, saying that she has invested all this money in buying another flat and that flat was bought by her husband. Yes, the flat bought from the husband! The husband bought this flat in 2015 in the Lodha Estrella project and sold it to the wife in 2021 for ₹ 3.85 crores through a registered sale agreement. The wife also paid the stamp duty and did all the transactions through banking channels.

The Income Tax Department could not digest this

However, the Income Tax Officer (AO) could not digest this. He objected that this was just a colourful transaction, that is, a transaction only to show on paper, in reality the property remained with the husband. He also said that the money was only diverted. First the wife received Rs 70 lakh from the company, then it was transferred to the husband and went back to the company on the same day. A similar transaction of Rs 3 crore also took place. But ITAT Mumbai rejected all these objections and said that the wife was the legal owner of the flats, because in 2017 the husband had given her his share of the property through a gift deed. The entire receipt of the money received from the sale was recorded in the wife's account.

Buying a flat from the husband to avail tax exemption under section 54 is not illegal, provided the transaction is genuine and through banking channels. The wife invested in the new property within the time limit and all documents were found to be correct. The ITAT wrote in its decision that there is no reason to deny the benefit under section 54 as all the conditions have been fulfilled. It also said that the AO did not understand the whole perspective of the transaction and drew a conclusion based on just one day's banking activity.

Why is this decision important?

This decision tells us that there is a difference between tax avoidance and tax planning. If the transaction is legal, authentic and accompanied by proper documents, then tax exemption can be obtained even if it is with a close relative. Also, if the conditions of section 54 are met, then tax can be avoided on a large scale and that too by staying within the ambit of the law.

PC:zeenews