Treatment of Proceeds from sale of Jointly held Flat

This query is : Resolved

Quick Summary

Query on taxation and distribution of sale proceeds of a jointly owned flat after death of one owner. Expert clarified shares among legal heirs and co-owner, TDS allocation, and that sale proceeds follow ownership rights. Cost of acquisition for heirs is inherited from original owner; holding period remains long-term.

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
Follow

11 January 2026 A, B and C own a flat where major financing is done by A and around 25% is financed through loan from Bank by C. C has been paying the emi and loan is almost paid.
A expired 2 years ago. A had three legal heirs i.e. B D and E of which B is the joint owner as stated above.
Under the premises kindly advise on the treatment of sale proceeds to be distributed between B,C,D and E as also the TDS by Buyer?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

11 January 2026 What were the percentage of shares of each (A B & C) declared the purchase agreement?

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
Follow

12 January 2026 No percentage was mentioned in the Purchase Agreement as it was in the family. Kindly advise!

Thanks & Regards

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

12 January 2026 B: 44.44% D&E : 11.11% each % C: 33.33%.. accordingly TDS can be deducted.

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
Follow

12 January 2026 Thank You Sir! What about cost of acquisition for determining Long Term Capital Gain in the respective hands?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

12 January 2026 Consider equal shares of all the three A B & C...
A's consideration inherited by B D & E..

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
Follow

12 January 2026 Thank You Sir! So does that imply Cost incurred by A would be the cost for B,D and E. For C, amount invested through Loan would be the cost? Kindly Advise?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

13 January 2026 It will not be total loan amount for C, as there is no specific declaration in the agreement. Any excess paid by C can be reimbursed by other two co-owners.

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
Follow

13 January 2026 Got it! Thank You Sir! As always, You have been helpful! Kind Regards

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

13 January 2026 You are welcome.

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
Follow

18 January 2026 Sir,
Will the proceeds received by the legal heirs be treated as a long term or short term capital gain?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

18 January 2026 Holding is counted from the date of original purchase.... hence long term....

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
Follow

12 April 2026 Thank You Sir! One final query! How book/notional profit, as if interest on amount invested is considered it would surpass the sale consideration, of say 14 lacs gets distributed amongst the stakeholders. Kindly advise!

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

12 April 2026 The distribution of sale proceeds is generally governed by legal ownership shares rather than a "notional profit" calculation based on interest. Under law, unless a formal agreement states otherwise, "book profit" or notional interest is not typically used to reduce the shares of legal heirs in favor of a co-owner who paid off a loan.
The Transfer of Property Act (Section 45) dictates that co-owners are entitled to interest in property in proportion to the consideration they advanced.
If a co-owner (C) claims that their investment plus interest surpasses the total sale value (e.g., ₹14 lakh), this does not technically mean there is "zero" to distribute to others.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

12 April 2026 If the stakeholders (B, C, D, and E) agree to a settlement, you can follow an Accounting Approach:
Step A: Recovery of Principal: Co-owner C is first reimbursed the actual principal amount of the loan they paid (the 25%).
Step B: Recovery of Interest (Optional): If B, D, and E agree, C could be reimbursed for the interest paid. However, legal heirs D and E are entitled to their share of A’s original equity by law.
Step C: Surplus Distribution: Any remaining amount from the ₹14 lakh after C’s reimbursement is distributed according to the registered ownership ratios (A, B, and C).
This would be mutual settlement, not for taxation purpose.

RAJEEV KUMAR MEHTA

RAJEEV KUMAR MEHTA (Querist)
Follow

23 April 2026 Thank You Sir! If I understood it right. Each individual would show the cost incurred, cost of improvement and arrive at the gain for tax purpose. In the case of legal heirs shares received becomes the cost!

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

23 April 2026 Yes, that is correct...

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now