Tax planning

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chandan kumar (Querist)
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14 August 2013 Read carefully the following tax planning and reply whether it is possible... Mr. A purchased a house property for Rs. 50 lakhs and mortgage this house with a Bank by taking loan of Rs. 50 lakhs. Mr. A gifted the said house property to his wife Mrs. A. Mrs. A will sell the house property in 100 lakhs and disbursed the loan of Rs. 50 lakh. Now calculate the capital gain in the hand of Mr. A and Mrs. A. In the hand of Mr. A capital gain is exempted u/s 47(ii). In the hand of Mrs. A sale proceed is Rs. 100 lakh. Cost of acqisation u/s 49(1) is Rs. 50 lakh. Moreover, bank loan paid by mrs. A for mortgaging free the house propery will be treated as COST OF IMPROVEMENT as decided by supreme court in the case of RM. Arunachalam. So capital gain comes to NIL.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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14 August 2013 Even if Mr. A GIFTS the house property to his wife, he will be the DEEMED OWNER of the house property as per Section 27(i) read with Section 64(iv).

So capital gain shall be taxable in his hands.

There is no tax planning here.

CA Sanjeev Kr Jain

CA Sanjeev Kr Jain (Expert)
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19 August 2013 WILL THE POSITION WOULD BE DIFFERENT IF HOUSE IS SOLD AFTER DEATH OF MR A

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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19 August 2013 Dear CA Sanjeev,

In case the house is sold by the legal heir of Mr. A AFTER his death and the legal heir discharges the mortgage created by Mr. A, in that case the amount paid for discharging the mortgage shall be treated as cost of improvement as held by Supreme Court in R.M. Arunachalam

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