Section 54 and joint ownership

A residential property is owned by my wife for 5 years. In order to reduce capital gains tax, she will transfer 33% each to her son and daughter by gift deed,  so that it becomes a joint ownership property. If they sell the property after a few months can each of them invest the capital gains amount in a different house and claim exemption under section 54. This way my wife can indirectly buy 3 houses with the capital gains amount, whereas normally only one house is allowed. Please inform whether this tax planning method is correct. The two main questions are:

Can each joint owner of sold property invest in a different house to get benefit under section 54? Also, after a gift deed , can the new joint owners get the benefit of long term capital gains since my wife has held it for 5 years?

 

Replies (3)
It is clearly written in Section 54 that proceeds arising from the Capital Gain from sale of the old residential house is exempted only if they are invested in ONE RESIDENTIAL HOUSE IN INDIA. Hence investing in 3 different houses is not permissibe under Section 54. The benefit of Long Term holding will be available to each joint owner as your case is covered under Section 49(1) and the holding period would be considered from the date the house was purchased by your wife.
Since there are 3 joint owners, can't each person buy one house in his name alone without going for joint ownership. Each person is a part owner of the house which is sold.

In this  case capital gains will arise in the hands of all three persons in the ratio of their respective shares. Section 54 will also apply individually to them so far as investment to get exemption is concerned. Therefore it is not a question of investment in more than one house which is not permitted in section 54. Moreover to get exemption investment should be made in the name of the concerned person only and not in any joint name.

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