Joint Ownership of Flat - Tax Implication

Tax planning 2526 views 5 replies

Niraj

Self Employed

67 Points Joined February 2010

Mr. A (Husband) has sold his plot of land and earned long term capital gain of Rs.4,00,000/- (5,00,000-1,00,000). To save on Income Tax u/s-54F, Mr. A is planning to invest gross proceeds of Rs.5,00,000/- for purchase of a residential flat costing Rs.20,00,000/- and balance Rs.15,00,000/- will be financed from home loan from a bank. The possession of this new flat will be given by builder after 18 months and payment are to be made to the builder on construction linked payments basis. After getting possession, this new flat will be given on rent.

Mr. A is presently also having one residential house, which is self occupied. Mrs. A is also having one another residential house, which is let out. Both Mr. A and Mrs. A are in service and are having nominal taxable income.

Now, Mr. A has following options: -

a) To purchase new flat in his own name only with 100% ownership,

b) To purchase new flat in his name jointly with his wife, but entire cost of new flat including home loan EMI to be paid by Mr. A only from his own sources. By doing this, there will be a saving of 1% in stamp duty at the time of registry of flat. Will Mr. A be treated as 100% owner or not in this case for income tax purposes?

c) To purchase new flat in the his name jointly with his wife, and the entire cost of new flat including home loan EMI to be paid by Mr. A and Mrs. A in the ratio of 2/3^rd and 1/3^rd respectively. In this case, Mr. A will invest Rs.5,00,000/-, Mrs. A will invest Rs.2,50,000/- and balance will be financed from home loan.

Keeping in view the above, what are the pros and cons of each option mentioned above and which option is the best option from tax planning angle and why. Please help me to solve this problem.

Thanks

Replies (5)

Niraj

Self Employed

67 Points Joined February 2010

Dear Experts,

Please give your expert opinion for tax planning.

Thanks

Amir

Learner

4016 Points Joined December 2009

Dear Niraj,

The facts that u have mentioned have very little flexibility in terms of some real gains..

Since both Mr & Mrs A already having one House, outof which House owned by Mr. A is self occupied & the one owned by Mrs. A is Letout, Further new House will also be let out.

So, Tax burden will be there either on Mr A or on Mrs. A...

Option 2 is not at all advisable - Joint Name & entire Consideration is paid by Mr. A

Reason - Despite of savings in 1% Stamp Duty(close to Rs. 20k), it is not a good option to exercise becos for Income tax purposes, Mr. A will be treated as Owner and instead of getting real benefits U WILL BE CAUSING COMPLICATIONS AS WELL IN TERMS OF CLUBBING AND ALL...........

So, now we are left with option 1 & 3

Either of them can be considered depending upon the other incomes of Mr & Mrs. A....

But I would say for hassel free life you should go for Option 1 100% ownership with Mr. A..........

Further in case u want to go forJoint ownership, just make sure that the share of Mr. A & Mrs. A is clearly set out in the agreement + distinction can be established in two sources of funds..........

Niraj

Self Employed

67 Points Joined February 2010

Thanks Amir for your valuable advise. Please also let me know the tax implication if in the options 2 and 3, Mrs. A is replaced by unmarried daughter, who is in service and having no immovable property.

Thanks

Amir

Learner

4016 Points Joined December 2009

Dear Sir,

As I told u earlier that ur facts have limited flexibility....

So mere Joint owner will not have much relevance in case where entire consideration is to be discharged by Mr. A.

Further in Option 3 income will be taxable in the hands of Mr. A and his Daughter (in their respective ratios) so not much to choose in this also...........

I would again say go for Option 1 only...................