Clubbing of capital gain
This query is : Resolved
05 July 2013
My mother-in-law sold residential plot (inherited) at a capital gain of Rs. 50.00 lakh. My wife sold another residential plot (self acquired) at a capital gain for Rs. 16.00 lakh. They purchased a residential flat for Rs. 73.30 lakh in joint name within one month of sale. My question is whether both can claim 'Nil" capital gain tax?
05 July 2013
Yes , both mother and daughter may be exempt from capital gains tax provided they contribute their respective sales consideration amounts in full and not merely capital gains.
.
.
06 July 2013
Thanks for the reply Sir. Infact the amounts mentioned above are the full sale considerations. The query was intentionally kept simple (actual capgain are lower).Additional Rs. 7.3 lakh were contributed by my wife from her savings.
Another related query: The share contribution is 68:32 approx. The registry is in both name without % specification. The flat has been put on rent. Both plan to share the rent 50:50. Is it okay for tax purposes i.e. income from house property or should they show receipt in ratio of their capital contribution?
Another related query: The share contribution is 68:32 approx. The registry is in both name without % specification. The flat has been put on rent. Both plan to share the rent 50:50. Is it okay for tax purposes i.e. income from house property or should they show receipt in ratio of their capital contribution?
19 July 2024
Based on the details provided, let's address your queries:
### Claiming Nil Capital Gains Tax:
1. **Mother-in-law's Sale of Inherited Plot:**
- Capital Gain: Rs. 50.00 lakh
- Purchase of Residential Flat: Rs. 73.30 lakh (including Rs. 7.3 lakh contribution from wife's savings)
2. **Wife's Sale of Self-acquired Plot:**
- Capital Gain: Rs. 16.00 lakh
- Purchase of Residential Flat: Jointly with mother-in-law for Rs. 73.30 lakh
**Points to Consider:**
- Both your mother-in-law and wife have sold residential plots and jointly purchased a residential flat within one month of the sale.
- The purchase of the residential flat can be considered for claiming exemption under Section 54 of the Income Tax Act, which provides for exemption from capital gains tax on the sale of a residential property if the gains are reinvested in another residential property.
**Conditions for Exemption under Section 54:**
- The exemption under Section 54 is available if:
- The capital gains from the sale of the original asset (in this case, the plots) are invested in purchasing another residential property.
- The new property is purchased either one year before the sale or two years after the sale of the original property, or constructed within three years from the date of sale.
**Regarding the Contributions:**
- Your wife has contributed Rs. 7.3 lakh from her savings towards the purchase of the residential flat.
- The total purchase price of the flat is Rs. 73.30 lakh, which includes contributions from both your mother-in-law and wife.
**Tax Implications:**
- Both your mother-in-law and wife can claim exemption from capital gains tax on their respective sales under Section 54, provided the entire capital gains amount is reinvested in the purchase of the residential flat.
- The exemption will be available in proportion to their respective shares in the new property, considering the contributions made.
### Income from House Property (Rental Income):
1. **Rental Income Sharing:**
- The flat is jointly owned by your mother-in-law and wife in the ratio of 68:32 approximately.
- They plan to share the rental income equally (50:50).
**Tax Treatment of Rental Income:**
- For tax purposes, rental income from a jointly owned property is typically considered in proportion to the ownership share unless there is a specific agreement stating otherwise.
- Since the property is jointly owned and put on rent, ideally, rental income should be shown in the same proportion as their ownership shares (68:32).
- If they decide to split the rental income 50:50 despite the ownership ratio, they should have a clear agreement documenting this arrangement.
- However, for tax purposes, it's advisable to show the rental income in proportion to their ownership shares unless they have a specific agreement to split it differently.
**Conclusion:**
- Your mother-in-law and wife can potentially claim exemption from capital gains tax under Section 54, provided all conditions are met.
- Rental income should ideally be shown in proportion to their ownership shares unless there is a clear agreement stating otherwise.
It's recommended to consult with a tax advisor or chartered accountant to ensure compliance with all tax laws and to optimize tax benefits in this scenario. They can provide personalized advice based on the specific details of the transactions and ownership structure.
### Claiming Nil Capital Gains Tax:
1. **Mother-in-law's Sale of Inherited Plot:**
- Capital Gain: Rs. 50.00 lakh
- Purchase of Residential Flat: Rs. 73.30 lakh (including Rs. 7.3 lakh contribution from wife's savings)
2. **Wife's Sale of Self-acquired Plot:**
- Capital Gain: Rs. 16.00 lakh
- Purchase of Residential Flat: Jointly with mother-in-law for Rs. 73.30 lakh
**Points to Consider:**
- Both your mother-in-law and wife have sold residential plots and jointly purchased a residential flat within one month of the sale.
- The purchase of the residential flat can be considered for claiming exemption under Section 54 of the Income Tax Act, which provides for exemption from capital gains tax on the sale of a residential property if the gains are reinvested in another residential property.
**Conditions for Exemption under Section 54:**
- The exemption under Section 54 is available if:
- The capital gains from the sale of the original asset (in this case, the plots) are invested in purchasing another residential property.
- The new property is purchased either one year before the sale or two years after the sale of the original property, or constructed within three years from the date of sale.
**Regarding the Contributions:**
- Your wife has contributed Rs. 7.3 lakh from her savings towards the purchase of the residential flat.
- The total purchase price of the flat is Rs. 73.30 lakh, which includes contributions from both your mother-in-law and wife.
**Tax Implications:**
- Both your mother-in-law and wife can claim exemption from capital gains tax on their respective sales under Section 54, provided the entire capital gains amount is reinvested in the purchase of the residential flat.
- The exemption will be available in proportion to their respective shares in the new property, considering the contributions made.
### Income from House Property (Rental Income):
1. **Rental Income Sharing:**
- The flat is jointly owned by your mother-in-law and wife in the ratio of 68:32 approximately.
- They plan to share the rental income equally (50:50).
**Tax Treatment of Rental Income:**
- For tax purposes, rental income from a jointly owned property is typically considered in proportion to the ownership share unless there is a specific agreement stating otherwise.
- Since the property is jointly owned and put on rent, ideally, rental income should be shown in the same proportion as their ownership shares (68:32).
- If they decide to split the rental income 50:50 despite the ownership ratio, they should have a clear agreement documenting this arrangement.
- However, for tax purposes, it's advisable to show the rental income in proportion to their ownership shares unless they have a specific agreement to split it differently.
**Conclusion:**
- Your mother-in-law and wife can potentially claim exemption from capital gains tax under Section 54, provided all conditions are met.
- Rental income should ideally be shown in proportion to their ownership shares unless there is a clear agreement stating otherwise.
It's recommended to consult with a tax advisor or chartered accountant to ensure compliance with all tax laws and to optimize tax benefits in this scenario. They can provide personalized advice based on the specific details of the transactions and ownership structure.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- ITR -1 Filing
- TWO FIRM NAME IN ONE GST NUMBER
- Section 54 f disallowed will be taxed at what rate
- Transportation of Petrol, Diesel by GTA and Other than GTA
- Which ITR application
- TDS whether applicable or not in case of Flat purchase
- Transfer of rectification rights to ao
- IGST Refund pending since June 2022.
- Transfer of Rectification Rights to the Jurisdictional Assessing Officer
- Form 16 Issues
- SALES MADE THROUGH E COMMERCE OPERATOR 9(5)
- Igst utilisation query
- Section 12A(1)AC
- Interest will be paid
- CHANGE IN PARTICULARS OF DIRECTOR
- Non- payment of GST on supply of services- reg
- Accumulated surplus exceeding 15%
- Different GST Number MEESHO
- Fees amount transfer procedure for two doctors
- Notice u/s 148 of IT Act
Trending Online Classes
CAclubindia
