Capital gain tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 March 2014 I purchased a residential property (on my wife's name )three months b4 the sale of commercial property(on my name) , by taking loan from a private company in my wife's account coz property was being registered on her name so all loan amount was transferred directly in her account. When the sale consideration money came from my commercial property (on my name) dat same amount was given to my wife's account to repay loan wid interest which I had taken on my wife's account. Making the purchase and sale value equal, there was no xcess value. Now my doubt is since I have taken loan on my wife's name nd purchased property 3 mnths b4 d sale of commercial property can i still take the exemption from paying the capital gain tax?? Cause my lawyer is saying wife is separate assesee nd dat loan is from her source of income so tax exemption can't be availed...is it so??

Thank you

Querist : Anonymous

Querist : Anonymous (Querist)

27 March 2014 Plz its urgent

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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18 July 2024 In the scenario you've described, where you purchased a residential property in your wife's name using a loan from a private company, and subsequently sold a commercial property in your own name, there are important considerations for claiming exemption from capital gains tax under Section 54 of the Income Tax Act, 1961 in India.

### Key Points to Consider:

1. **Ownership and Loan Source:**
- The property purchased in your wife's name using a loan is legally owned by her, and the loan is in her name as well.
- For claiming exemption under Section 54, the new residential property must be purchased or constructed in the name of the assessee who is liable to pay tax on the capital gains arising from the sale of the original property (the commercial property in your name).

2. **Income Source and Exemption Eligibility:**
- The Income Tax Act considers the assessee who is liable to pay tax on the capital gains. In your case, the commercial property was in your name, and hence you are liable to pay tax on the capital gains from its sale.
- Exemption under Section 54 is available if the capital gains are invested in purchasing or constructing a new residential property in your name (or jointly with your wife, if applicable).

3. **Loan Source and Exemption Eligibility:**
- If the loan for purchasing the residential property was taken in your wife's name and the property is also in her name, the income tax authorities may scrutinize whether you (as the person liable to pay tax on capital gains from the commercial property) can claim exemption under Section 54.
- The tax authorities may require proof that the funds used for purchasing the residential property in your wife's name were indeed sourced from your capital gains (from the sale of the commercial property).

4. **Legal Interpretation:**
- While your lawyer's advice is that your wife is a separate assessee and the loan is from her source of income, the ultimate determination of tax liability and exemption eligibility will depend on how the income tax authorities interpret the facts and the documentation provided.
- It's important to have clear documentation of the source of funds used to purchase the residential property and to repay the loan, including how the capital gains from the sale of the commercial property were utilized.

### Steps to Consider:

- **Documentary Evidence:** Gather all documents related to the sale of the commercial property, purchase of the residential property, and the loan transaction. This includes sale deed, purchase deed, loan agreement, bank statements, and receipts.

- **Consultation:** Seek further clarification from a tax advisor or chartered accountant who can review all documentation and provide specific guidance based on the latest tax regulations and interpretations.

- **Income Tax Return:** Ensure that the transaction details are accurately reflected in your income tax return, clearly indicating the capital gains from the sale of the commercial property and the investment made in the residential property.

### Conclusion:

While there is a legal and tax distinction between you and your wife as separate assessees, the exemption under Section 54 is typically linked to the person liable to pay tax on the capital gains. Given the complexity of your situation, professional advice tailored to your specific circumstances is crucial to ensure compliance and to optimize tax benefits available under the law.

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