Section 54

I think you might have to wait till your assessment for the relevant period is completed before you decide to gift the property in favor of your sister. You may prepare a gift deed duly stamped and registered, and your sister need not pay any tax over it.

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If you gift new investment property to your sister with in six months, you will be liable to pay Short term capital gain tax. Even in case of gift, taxability is in the hands of receipient, gifting Immovable property is also a transfer as you need to Register gift deed in this regard. As in case of sec.54, new property should not be transfered before the expiry of 3years from the date of Investement, otherwise entire Long term capital gain taken as exemption u/s.54 will be taxable as Short term capital gain.
 

Alternatively I wish to ask can I sell of my second property and invest in a new property with me and my sister as joint owners? Will it be interferring with any long term capital gains guidelines of section 54? Has the new property to be purchased in my name or joint name is allowed?
 

I think you can buy the new property in joint name with you and your sister. The situation will change if the property value is over Rs. 50 lacs, where TDS is to be deducted at 1% u/s 194-IA.

Yes agree with you

but then u will be allowed to set off your capital gain upto your share in the property only

Suppose I invest the capital gains to invest in a new residential flat in my name alone, how many years do I need to wair before I can gift the new flat to my sister through gift deed without any consideration in return?