Short term capital gain in case of joint owners

Tax queries 911 views 4 replies

Vipul Shah

Principal Consultant

29 Points Joined November 2014

Dear Sir/Madam,
Greetings!!!
Hope you are doing good
My question is related to Short Term Capital Gains in case of Joint Owners
I have purchased a Property in June 2012 for an Agreement Value of 1650000, when market value according to ready recokner was at 2250000.
I did paid all the stamp duty and registration charges on 22.5 lakhs Myself and my spouse are joint owners of the flat and she is the first owner
Now i am planning to sell the house in Nov 2014, i have read article on caclubindia.com which says this sale would be under short term capital gain.
Current market value of the flat is 3287000 Original Cost of Flat is 1650000/- 200000/- (Cost of Brokerage, Legal Expenses , Stamp Duty and Registration etc).
I have done repair & rennovation upto an extent of 3 lakhs in June 2014
My queries are
1-> Whether while calculating Short Term will the agreement value will be counted or market value i.e 32.87 Lakhs - 16.50 Lakhs or 32.87 - 22.50 lakhs ?
2-> As my spouse doesnt have any income this year can i transfer the whole profit in her account to reduce the tax liability or will it be 50:50 ?
3-> If at this point of time while selling i make an agreement value of 26.50 lakhs will it help me in reducing tax liability ?
4-> The Society maintenance which i have paid for last 30 months can i include as cost in computation ?
Many thanks for your answers in advance

Regards

Vipul Shah

Replies (4)

Ajay

CA Job

512 Points Joined March 2007

Dear Vipul

1. Cost of Acquistion has to be the agreement value. Only for a property acquired before 1st April, 1981, the assessee is given the option to choose between the actual cost and fair market value as on April 1, 1981. So in your case, cost will be the agreement value Rs.16.5 Lakhs.

2. You can't possibly transfer the income to your spouse as clubbing of income provisions will apply and ultimately, the income will get taxed in your hands only. Even if you gift (that is for nil or inadequate consideration) your share to your wife, you still will be deemed as the owner to that extent u/s 27 of the Act. Or, if i am not wrong, even if you gift money to your wife who in turn buy the share of 50% from you, still the income from such 50% (that is the house property income and also the capital gain consequent to the sale of the propoerty) will be clubbed with your income and taxed at appripriate slab rates. Being a short term asset, there doesn't seems to be much scope for tax planning.

Anyway if your wife has no other income, she can take the benefit of Proviso to Sec.111A by claiming the benefit of unused slab exemption for the STCG computed for her share of 50%.

3. The question doesn't warrant an answer here assuming you know the implications. Keep in mind Sec.50C.

4. You cannot claim deduction for the repairs and soical maintanance while computing the capital gains. If there is any expenditure of capital nature incurred which had improved the value of the property, you could consider it as cost of improvement and claim deduction while computing Short Term Capital Gain. And definitely, you need to have supporting document for the same.

Regards

Ajay

Vipul Shah

Principal Consultant

29 Points Joined November 2014

Originally posted by : Ajay

Dear Ajay,

Thank you for your detailed reply

How about if i invest the same money in a new property , still the STCG will be calculated or will it be exempted

Regards

Vipul Shah

Dear Vipul

1. Cost of Acquistion has to be the agreement value. Only for a property acquired before 1st April, 1981, the assessee is given the option to choose between the actual cost and fair market value as on April 1, 1981. So in your case, cost will be the agreement value Rs.16.5 Lakhs.

2. You can't possibly transfer the income to your spouse as clubbing of income provisions will apply and ultimately, the income will get taxed in your hands only. Even if you gift (that is for nil or inadequate consideration) your share to your wife, you still will be deemed as the owner to that extent u/s 27 of the Act. Or, if i am not wrong, even if you gift money to your wife who in turn buy the share of 50% from you, still the income from such 50% (that is the house property income and also the capital gain consequent to the sale of the propoerty) will be clubbed with your income and taxed at appripriate slab rates. Being a short term asset, there doesn't seems to be much scope for tax planning.

Anyway if your wife has no other income, she can take the benefit of Proviso to Sec.111A by claiming the benefit of unused slab exemption for the STCG computed for her share of 50%.

3. The question doesn't warrant an answer here assuming you know the implications. Keep in mind Sec.50C.

4. You cannot claim deduction for the repairs and soical maintanance while computing the capital gains. If there is any expenditure of capital nature incurred which had improved the value of the property, you could consider it as cost of improvement and claim deduction while computing Short Term Capital Gain. And definitely, you need to have supporting document for the same.

Regards

Ajay

Ajay

CA Job

512 Points Joined March 2007

Sorry, even if you re invest in some other asset, you cannot claim exemption since it is a Short Term Capital Gain.

The sections which grant exemptions in case of short term capital gains like Sec.54B, 54D etc. are not applicable as such sections talk about CG arising on transfer of agricultural land, lands parts of an industrial undertaking etc.

Since you have purachsed your property in June 2012, if could wait till June 2015, your asset becomes Long Term Capital Asset and more opportunites for availing exemptions get opened to you besides getting the LTCG taxed at a lower percentage of 20%.

But that entirely depends on your liquidity requirement.

I can't think of any further ways of claming exemption in your case, though you may wait for more replies.

Mihir

Wealth Manager

5293 Points Joined December 2008

If possible, you can wait for another 6-7 months to complete 3 years.

Or you may find out the ready reckoner value of the property and set the agreement value matching the ready reckoner value. The balance can be received in cash, which will not be disclosed in your ITR. And you may have to pay less STCG.