Capital Gains Tax from sale of residential property

My wife and I jointly owned a property since 2003.( Wife first name and me 2nd name). The property was under rent since possession. Wife was showing the rent under her income.

Recently, that has been sold off and capital gains, after indexation, has accrued.

We also own a property since 2014. Same joint name. Wife first and me 2nd. The flat is for own use and mostly lie vacant.

We stay in a flat that is owned by me ( singly held).

My query is, if we book / buy a flat in joint name now ( wife first and me 2nd) , will we be elligible for capital gains tax exemption under section 54? The cost of the flat to be occupied in 2024 is almost same as the capital gain. That is around 92 lacs. We propose to divide the capital gains @ 46 lacs each for my wife and me.

If the new flat doesnot qualify for capital gains exemption, then we buy Bonds under 54EC for 46 lacs each within 6 months of sale of the flat ( 28th Feb 2022) and avoid paying Capital Gains tax.

Kindly help us with the rule and clarification.

Regards and thanks in anticipation.

Let's break down your situation and clarify how Capital Gains Tax (CGT) exemptions under Section 54 and Section 54EC work in your case:

Your Situation Recap:

Jointly owned property since 2003 (wife 1st name, you 2nd name), rented out, rent declared by wife.
Sold property recently; capital gains accrued after indexation.
Own another jointly held property (wife 1st name, you 2nd name) used mostly vacant.
You live in a flat owned solely by you.
Plan to buy a new flat jointly (wife 1st name, you 2nd name) in 2024 for ~Rs. 92 lakhs, approx equal to capital gains.
Intend to divide capital gains equally (Rs. 46 lakhs each).
Query: Will you get exemption under Section 54 on buying new joint property?
If not, plan to invest in 54EC bonds of Rs. 46 lakhs each within 6 months.

Key Points on Capital Gains Exemption:

1. Section 54 - Exemption on Purchase of Residential House

Applies only to long-term capital gains arising from sale of a residential house property.
Exemption is allowed if capital gains are invested in purchase/construction of another residential house property within specified time (purchase within 1 year before or 2 years after sale, or construction within 3 years).
Who can claim?
Only the owner of the sold property can claim exemption in proportion to their share.
Since the property was jointly owned by you and your wife, both can claim exemption proportionally to their share in capital gains.
The new property purchased jointly (wife first, you second) will be eligible for exemption if it is purchased within the specified time and is a residential house.
The order of names in ownership (wife first, you second) in new property does not affect exemption eligibility as long as you both are owners.
Therefore, you both can claim exemption under Section 54 by investing your respective share of capital gains (Rs. 46 lakhs each) in the new property.

2. Section 54EC - Exemption by Investing in Bonds

If you do not buy a residential property or do not invest the full capital gain in property, you can invest up to Rs. 50 lakhs each in specified bonds (NHAI, REC) within 6 months from sale date.
Bonds have a lock-in period of 5 years.
Since your plan is to invest Rs. 46 lakhs each in bonds, this will qualify for exemption under 54EC if you don’t claim 54 exemption.

3. Additional Notes

The capital gains must be declared in the year of sale and exemption claimed in the same year.
If you purchase the new property jointly, exemption will be allowed proportionally.
You need to maintain proof of purchase to claim exemption.
Since you both are owners of old property and plan to buy new jointly, both can independently claim exemption on their share.

Summary Table:

Situation/Query	Explanation
Can joint owners claim exemption under 54?	Yes, proportionally to their share in capital gains
Does name order matter in new property ownership?	No, joint ownership qualifies for exemption
If new property not purchased, invest in 54EC bonds?	Yes, up to Rs 50 lakhs each within 6 months of sale
Time limit for purchasing new property	Purchase within 1 year before or 2 years after sale; construction within 3 years
Does owning another property affect exemption?	No, as long as new property purchased as mentioned, exemption allowed

Recommendations:

Buy the new property jointly as planned within the specified time to get exemption under Section 54.
Keep all receipts and documents safely.
Declare capital gains and exemptions properly in ITR.
If new property purchase is delayed or incomplete, invest in 54EC bonds to save tax.