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Capital gains on property sale : joint re-investment

Anil (Self) (29 Points)

25 August 2011

Hi,
We recently sold our ancestral property(constructed in 1964). My Dad had a share in the property and he expired before we sold the property. So after his expiry, my Mom and us 4 brothers and sisters became the legal heirs to my Dad's share. We did the khata transfer of the property in our names. After the khata transfer we 5 of us (my Mom + 4 of us) became the legal owners. We then sold this property. Now the question is, can we invest in a property jointly to avoid capital gains tax? Ideally we would like to invest the proceeds to buy a property in my Mom's name. This property will be a primary residence for my Mom. Is that possible without incurring capital gains tax?

thanks
Anil

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8 Replies

Desi Mojito (Chartered Accountant) (142 Points)
Replied 26 August 2011

firstly, when you will sell the house capital gains tax liability will arise on all the 5 people mentioned herein, proportionately, since the transfer has been made in 5 people's joint name after your dad's demise. If u purchase a new house in ur mom's name only she will be entitled for capital gain exemption u/s 54. It is better to purchase the house in joint names so that the exemption can be enjoyed by all the 5 peoples.

1 Like

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 26 August 2011

‘Purchase’ does not mean that the new house must be registered in assessee’s name - For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property purchased. The word ‘purchase’ occurring in section 54(1) has to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Therefore, for the purpose of applicability of section 54, registration of the document is not imperative - Balraj v. CIT [2002] 123 Taxman 290/254 ITR 22 (Delhi).

https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2006ITAct/casesec54.htm

benefit available if registered in any name of 5, only confirmating that the funds got used for buyui8ng the property ( use banking chanel to tranfer the funds to seller direct from each account)

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Anil (Self) (29 Points)
Replied 26 August 2011

Thanks for the response and clarifications. When we sold the property, we asked the seller to give the entire amount by cheque in my mother's name. We put a clause in the sale deed that all of 5 of us were OK to receive the sale proceeds in my mother's name. As per advice from our Accountant we deposited the cheque in an FD in Mom's bank account. Now when we buy the new property, we'll be making the payment from my mother's account. So how would this be viewed from a capital gains tax perspective. Would it be considered that all 5 of us have invested again in property from the proceeds even though payment is made from one account?

thanks

Anil

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 27 August 2011

there is no prob from either 1 or 5 accounts, provided if whole the amount goes to new property !!

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Mihir (Wealth Manager) (5293 Points)
Replied 27 August 2011

What if the assessee is the trustee of a flat in the society (100% share) and has a joint-ownership of the flat in the records of the BMC, and then sells the above flat? Will capital gain be proportionally divided to both the co-owners? Can both independently avail the exemption u/s 54?

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 27 August 2011

Originally posted by : Mihir
	What if the assessee is the trustee of a flat in the society (100% share) and has a joint-ownership of the flat in the records of the BMC, and then sells the above flat? Will capital gain be proportionally divided to both the co-owners? Can both independently avail the exemption u/s 54?

unless COA is reflected in the hands of individual or both holders, capital gain does not arise.

Karan Gosain (CA) (46 Points)
Replied 28 August 2011

See as per legal procedures, before the sale of the joint property, a deed called " Relinquishment Deed" is made in favor of your mother, in which all the kids leave or forgo their right in property in favor of your mother. This way, mother becomes the sole and absolute owner of the property she sell. Further, now since she has become the same assessee, she can buy a new house in her name, and enjoy the benefit of Sec.54.

1 Like

Ajay Kumar (Article) (31 Points)
Replied 25 April 2015

IF Sister in law tranfered her share (50%) in flat to his brother in law for consideration. will capital gain arises? And whether Brother in law take benefit of section 54.?? Waiting expert view on this... ?????