Decoded: The Tax Tangle Over ₹10 Crore Capital Gains Cap

The mismatch between intent and wording fuels litigation risks in capital gains cases

- GAUTAM NAYAK

When the government capped capital gains exemption on reinvestment in residential property at ₹10 crore, the underlying intention was clear: to prevent ultra-rich taxpayers from parking hundreds of crores into palatial houses and thereby escaping tax liability. But as always with Indian tax law, the devil lies in the finer details.

On paper, the law seems simple enough. Sell a house, reinvest the gains into another residential property, and you can claim tax exemption on those gains up to ₹10 crore. Do the same when you sell other long-term assets and reinvest under Section 54F, and the very same ₹10 crore cap applies. Sounds straightforward, but not so much in real life.

Consider this example: A taxpayer sells both a house and some shares. The gains from the house qualify under Section 54, whereas the gains from shares qualify under Section 54F. If he ploughs the entire proceeds into a ₹20 crore home, shouldn't he logically be able to claim exemption on both sets of gains? The law doesn't cross-link the two sections. But the income-tax return utility restricts the exemption to ₹10 crore in total. The gap between text and practice becomes obvious in such cases.