Tax liability on sale of propery

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dheeraj kumar (Querist)
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31 October 2012 My uncle has sold property for Rs. 50 lacs and has given the amount to his son and who has invested the same in purchase of house in his name

whether my uncle is liable to pay tax on sale of property

had the situation been different if my uncle had invested the proceeds in his name.

pLEASE provide exact laws for the same

Thanks
Dheeraj kUMAR

Sunny Sonwal

Sunny Sonwal (Expert)
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31 October 2012 Yes, your uncle is liable to pay capital gain tax.

And he can not claim for exemption under section 54 or 54F.

But it coulb be possible when your uncle's son would have dependent on your uncle whether property was purchased in the name of uncle's son.

dheeraj kumar

dheeraj kumar (Querist)
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31 October 2012 i did not understand the last line

please clarify in more simple manner

what are the circumstances in which he can save tax liability even by purchasing
property in the name of sons

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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26 July 2025 Great question, Dheeraj — and a common one too when family members are involved in property transactions.

Let’s break it down step-by-step, with relevant tax laws and provisions.

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## 🔍 **Situation Summary**

* Your **uncle** sold a property for **₹50 lakhs**.
* He **gave the entire amount to his son**, who used it to **buy a house in his own name**.
* You're asking:

1. Is your **uncle liable for tax** on the sale?
2. Would the tax treatment **change if your uncle had reinvested in his own name**?

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## ✅ **1. Is Tax Payable by Your Uncle on Sale of Property?**

### ✅ Yes — he is **liable to pay capital gains tax**.

Under the **Income Tax Act**, when a person **sells a capital asset (property)**, the resulting **capital gain** is **taxable in the hands of the seller**.

So:

* Your **uncle** is the **owner and seller**,
* The **capital gains** (short- or long-term) will be **taxed in his hands**, **regardless of what he does with the money afterward**.

> Giving the sale proceeds to his son **does not provide any tax exemption**.

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## 🔍 **2. Can He Claim Exemption by Reinvesting the Sale Proceeds?**

### ✅ **Yes — but only if**:

* He **reinvests the capital gain amount** in certain **eligible assets**, and
* The **investment is in his own name**.

---

## 🧾 **Applicable Tax Provisions**

| Section | Exemption Condition |
| --------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Section 54** | If **long-term capital gain** from sale of **residential house** is invested in another **residential house**, within prescribed time (1 year before or 2 years after, or construct within 3 years). |
| **Section 54F** | If long-term gain from **any other asset (e.g., land)** is invested in a **residential house** and the assessee owns **not more than one** house at time of sale. |

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## 🔴 Important: Investment **must be in the name of the seller**

The **Courts and CBDT** have clarified that:

> The exemption under **Section 54 and 54F is available only if the new property is purchased in the name of the assessee (your uncle)**.

➡️ Since your uncle gave the money to his **son**, and the **son purchased the property in his own name**, your uncle **cannot claim exemption**.

✅ If he had invested the capital gains **in his own name**, he **could have claimed exemption** and reduced (or eliminated) his tax liability.

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## ⚖️ **Key Case Law**

* **CIT v. Kamal Wahal** (Delhi HC): Allowed Section 54 exemption when property purchased in **joint name with wife** (on facts).
* But courts have **consistently denied** exemption when **property purchased only in name of someone else (like son)**.

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## ✅ Summary

| Scenario | Capital Gain Taxable? | Exemption Available? | Section |
| ---------------------------------------- | --------------------- | -------------------- | -------- |
| Uncle sells and gives money to son | ✅ Yes | ❌ No | – |
| Uncle reinvests in house **in own name** | ✅ Yes | ✅ Yes | 54 / 54F |

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## 🧮 Example (for clarity)

* **Sale value:** ₹50 lakhs
* **Cost (indexed):** ₹20 lakhs
* **Long-term capital gain:** ₹30 lakhs

➡️ Uncle must pay **20% LTCG tax on ₹30 lakhs = ₹6 lakhs**, **unless** he invests the gain in **his own name** under Section 54/54F.

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Let me know if you’d like:

* Help calculating exact capital gains
* Guidance on using **Capital Gains Account Scheme (CGAS)**
* Drafting a plan to **invest and save tax legally**

Happy to assist!

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