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Mother selling property and buying a new one in son's name

calvin hobbes (Finance Professional) (38 Points)

18 August 2014

Dear all

Lets say a mother A wants to sell off her property and wants to buy another one but in the name of her son.

The property being sold was received from father by way of will and the reason is to avoid registration costs two times (one at time of gift to son and second at the time of new registration)

Can this be done and how? How will taxation worked out to be? Will mother need to pay long term capital gains or since she is buying another residential property but in son's name this will be exempt?

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15 Replies

subhash kumar jha (PROFESSION) (445 Points)
Replied 18 August 2014

Yes u can availed benifit of exemption by purchasing it in the name of ur son, no issue

calvin hobbes (Finance Professional) (38 Points)
Replied 18 August 2014

OK thanks so basically long term capital gains will not arise in this case since another house is purchased irrespective of in whose name it is purchased.

-Is this explicitly mentioned in any section or income tax or any cases earlier for reference?

-Lets say the son sells this new house 5 years later, in that case will the cost of acquisition for the son will be the amount paid by the mother at the time of purchase or will it be treated as zero since the son hasn't paid any money towards the purcase?

NAVEESH DHAR (ADVOCATE- TAXATION ADVISOR) (427 Points)
Replied 18 August 2014

Dear SUBHASH , have u any cited case for the same... please provide.... because in my opinion assessee cannot claim such exemption.

TKKKKKK (PRACTICING CA) (3268 Points)
Replied 18 August 2014

No, mother can't get exemption if she purchased property on son's name.on transfer,long term capital gain will arise on sale of property. Mother should purchase new property to save tax.practically it is foolish thing to transfer property to anyone's name.specially in old age,

Mihir (Wealth Manager) (5293 Points)
Replied 19 August 2014

She will have to purchase a new property in her name and claim exemption in her ITR. She should also prepare a Will along with the nomination in the society.

Ashwin Sharma (Partner) (152 Points)
Replied 19 August 2014

To be on the safer side... property can be purchased in joint name with son's name 2nd. Exemption is not available if its purchased in son's name only

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CS Advocate Abhishek Goyal (M Com FCS LLB M-AIMA ) (13531 Points)
Replied 20 August 2014

If mother purchases new property in her son's name than no exemption will be available to her u/s 54 unless the property is purchased in either her name or in joint name with her name as the first holder. Another way may be that the mother may purchase the new propety in her name and get exemption from capital gains and then gift the same to her son. In that case there will be no gift tax implications and if son transfer the new property later capital gains will accrue to him in which case cost of acquisition for her mother will be taken as son's cost of acquisition. Period of holding shall also be reckoned from the point of view of mother, i.e. period of holding will be reckoned from the date of purchase by mother till the date of transfer by son.

calvin hobbes (Finance Professional) (38 Points)
Replied 20 August 2014

Thanks all l. Though i think I should clarify here a few things 1. The reason for not selling first and then buying property in mother's name and then gifting to son is that a) If gift is done within 3 years of purchase the capital gains exemption becomes taxable b) The property registration cost (stamp duty) will be paif twice so double cost. 2. I have read a few cases where it was clarifies by courts that property can be purchased in anyone's name till the time money is pad by seller i.e. mother Citing 2 examples below. a)https://www.indiankanoon.org/doc/859574 b)https://m.rediff.com/money/report/budget-perfin-capital-gains-tax-exemption-for-joint-property-also/20130211.htm 3. Buying jointly will mean that share of mom may be contested by other siblings after her deat and wills are always challenged. Idea here is to gve property to son to avoid litigation between brothers later.

Mihir (Wealth Manager) (5293 Points)
Replied 21 August 2014

If the mother has not yet sold the property, then she may prepare a gift deed in favor of the son. Thereafter, the son may sell the property and he will incur capital gain. Stamp duty and Registration of gift deed is mandatory.

calvin hobbes (Finance Professional) (38 Points)
Replied 21 August 2014

But in this case also stamp duty will be paid two times. Once on gift and then in purchase of second property.

Mihir (Wealth Manager) (5293 Points)
Replied 21 August 2014

Stamp duty is mandatory. You may claim stamp duty amount u/s 80C upto Rs. 100,000/- in your ITR.

Akhil Manohar (Article & Audit Assistant) (85 Points)
Replied 21 August 2014

You cannot avail the exemption if you are purchasing it in your sons name.

Either you can purchase it in your name or can be purchased as joint owners.

sanku (service) (25 Points)
Replied 23 December 2015

My father want to buy a flat in my name by withdrawing fixed deposit, is it taxable to me or my father ?

Ankit Taprania (CA FINAL ) (542 Points)
Replied 23 December 2015

let me clear one thing that PURCHASE of proprty and REGISTRATION of property are two different things .

section 54 / 54F no where provide that the purchased property should be registered in the name of the assesse himself. consequently exemption is available even if it is purchased by him but registered in the name of some close relative who is not the stranger .

this interpretation is also supported by Delhi High Court in case of KAMAL WAHAL (2013). where assesse has sold a capital asset and invested the sale proceeds in purchase of a new house in the NAME OF HIS WIFE . and deduction u/s 54F is allowed to him.

the object of 54 / 54F is to encourage investment in residential house therefore it should be interpreated liberaly to fulfill that object.