Parents' investment and exemption of capital gain tax

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Irfan Ali

Engineer

24 Points Joined November 2014

Hi All,

I have purchased a under construction property for 55 Lacs, in Nov 2013 (registory not done yet) and I am sole owner of it and I have taken loan from IDBI bank on my name (no co-applicants). Few months after my mother has sold her very old commercial propoerty for 20 lacs, in Feb 2014, and now with that 20 lacs she wants to invest in my property, purpose to reduce my loan amount + by-pass capital gain tax.

Can she invest in my property to get an exemption from capital gain tax? If yes then what will be the procedure, what all steps to be taken. I can add her an co-aaplicant in my Loan account as well as in my property? for this what all I need to do?

Note : Registory not-yet done for my under construction apartment, it may take another 8-9 months, i.e. next finacial year for registory to be done.

Let me know if you need more info.

-Irfan

Replies (2)

Mihir

Wealth Manager

5293 Points Joined December 2008

First you will have to compute long term capital gain from sale of commercial property. And only LTCG is required to be reinvested to save tax.

She may reinvest in another property or in bonds. She cannot repay your housing loan and even if she does, that will not save tax.

Z

Tax Consultation (US and India)

2970 Points Joined September 2011

Since its sale of commercial property and not a resisdential property, Net sale consideration will have to be invested and not merely cap gain amount.

Further I am presuming that all the conditions of S.54F are satisfied (Check S.54 F for details).

There are several case laws which will disentitle her from exemption since money has been borrowed for this purpose. However under some cases exemption can be allowed but that depends upon the facts and circumstance of the each case

For eg. If the cost of the asset would be more than the money borrowed and the amount relized ,net of sales consideration,be utilized for the aforesaid purpose.

That is if she wants to claim deduction u/s 54F you will have to utilize whole of the borrowed money and net sales consideration.

(Not citing cases unless required........ there are only few people who read the cases & go in details :(

Sorry nothing is intended @ you, Dont take it personally)