Yes both of you may claim exemption from long term capital gain tax but the share of your mother with father if shares are not defined will also be liable for capital gain tax in 50:50 share.
Capital gains tax exemption on joint holding
Hi, I have sold a property A which was in my individual name. My father has sold another property B that was in his and my mother’s name. Both above transactions resulted in long term capital gains. Now me and my father want to purchase another residential property C. We will contribute exact amount of Sales proceeds from A and B to C. Can we both get exemption from log term capital gains tax? Please advise. Regards
Asked 6 years ago in Taxation
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8 Answers
You can both get exemption from long term capital gains tax as capital gains have been invested in purchase of another residential flat
However your mother name should be reflected in purchase of another flat as otherwise she would have to pay capital gains tax on her share as she has not invested sale proceeds in purchase of another flat
By selling old property (Property A and Property B) your objective was not to earn income but to acquire another suitable Property C therefore, you are exempted from long term capital gains tax subject to fulfillment of certain conditions specified in Section 54 of Income Tax Act. The Conditions are:-
1. The benefit of Section 54 is available only to an individual or HUF.
2. The asset transferred should be a long-term capital asset, being a residential house property.
3. Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house.
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Certainly, you need to establish that the sale proceeds of A&B has been channelized to buy C.
The LTCG exemption is available to the owner and thus, as you and your father will be co-owner, both of you will get the exemption from long term capital gains tax if you both contribute an amount equallly. however only if the amount that is being invested in the purchase of residential property C equals or exceeds the long term capital gain earned by you and your father individually from the sale of A and B respectively, then only the full capital gains will be exempted from tax.
If both the property attracts long term capital gains, then this joint purchase of another residential property by investment from all the three will be eligible for long terms capital gains exemption under section 54 of IT act.
1. You and your father can avail the exemption even if the property is purchased jointly.
2. However, your mother cannot claim exemption unless she is also a buyer. The sale deed can be registered in favour of all of you. Unless she is a buyer she cannot claim exemption. The purpose of section 54F is that new residential house need not be purchased by the assessee in her own name. A purposive construction is to be preferred as against a literal construction, more so when even applying the literal construction, there is nothing in the section to show that the house should be purchased in the name of the assessee only. As a matter of fact, Section 54F in terms does not require that the new residential property shall be purchased in the name of the assessee; it merely says that the assessee should have purchased "a residential house".
Hi,
Yes, both of you can claim exemption. However, since property B was owned by your father and mother, property C will have to include your mother's name as well.
Regards,
Keerthiga Sharma
M.Com., CA, LL.B
