• Investment in joint property to avoid LTCG

I and my mother jointly bought a flat in 2002 for Ten lakhs. We gifted it to my wife in May 2016. My wife sold it for Rs 67 Lakhs in October 2016. My wife and me jointly bought a new flat for Rs 1 Cr by investing the entire amount of sale as well taking a joint loan of Rs 29 Lakh and Rs Ten lakh from my saving. We reinvested in property to avoid LTCG. I only contributed as the cost of new flat was beyond the Rs 67 lakhs from sale of earlier property, and banks would not give a loan to my wife as she isn't working now. Is it possible to get LTCG tax benefit or do I have to pay tax.
Asked 7 years ago in Taxation

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3 Answers

1) Section 54F of the Act provides that if a tax payer invests the sale proceeds received from the sale of any capital asset for buying a residential property; the long-term capital gains on sale of the property would be exempt.

2) section 54F being a beneficial provision, enacted for encouraging investment in residential houses should be liberally interpreted to include investment done in the spouse’s name too.

3) purposive construction of the legal provisions is to be preferred as against a literal construction. Further, even if the provisions of section 54F are literally constructed, there is nothing in the section to show that the house should be purchased in the name of the tax payer only.

4) The Delhi High Court observed that section 54F does not require that the new residential property should be purchased in the name of the tax payer; it merely says that the tax payer should have purchased / constructed a ‘residential house’.

5) your wife is eligible to claim benefit of LTCG

Ajay Sethi
Advocate, Mumbai
96748 Answers
7804 Consultations

Hi,

You can claim the benefit of LTCG since the entire capital gain amount has been invested in the new property within the requisite time period.

Regards,

Keerthiga Sharma

M.Com., CA, LL.B

Keerthiga Sharma
Advocate, Greater Mumbai
44 Answers
2 Consultations

Your wife is entitled for exemption under section 54 of IT act for the entire LTCG tax if she has invested the entire amount.

However you are not entitled for any tax exemption except for the IT rebate on your investment.

T Kalaiselvan
Advocate, Vellore
86950 Answers
2334 Consultations

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