The recent ruling by the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) set a significant precedent by granting a deduction on long-term capital gains (LTCG) from the sale of inherited jewellery. This decision overturned an earlier denial by an assessing officer (AO) who had rejected the benefit under Section 54F of the Income-Tax Act, 1961, which allows taxpayers to claim an exemption on LTCG from the sale of capital assets other than house property. The ruling reaffirms that taxpayers can avoid paying taxes on profits from selling assets like stocks, bonds, jewellery, or gold by using the proceeds to purchase a new residential house.
The ITAT's decision clarified that the exemption under Section 54F extends to capital gains derived from the sale of inherited gold and jewellery, on the condition that the gains are reinvested in acquiring a residential house through a registered sale deed. Despite challenges from the Income-Tax (I-T) Department regarding the legitimacy of the transaction involving the sale of inherited gold, the ITAT dismissed such refutations. This ruling by the tribunal emphasizes that the sale price of inherited jewellery should be considered a long-term capital asset inherited from the original owner rather than an income from 'other sources'.
For taxpayers looking to benefit from the exemption under Section 54F, which applies to individual or Hindu Undivided Family (HUF) taxpayers earning LTCG from the sale of assets other than residential property, it is crucial to reinvest the gains in purchasing or constructing a new residential house in India. The requirement includes not owning more than one residential house, apart from the new one, at the time of selling the asset. The amendment effective from April 1, 2024, has capped the exemption limit at Rs 10 crore, ensuring that taxpayers can make use of this provision to save on capital gains taxes.