• Capital gains from old property and joint ownership of new property

Hi Revered Law Gurus

I read this article and have the same Q. https://www.kaanoon.com/89266/capital-gains-and-joint-ownership

I have a flat in my wife's name, which is now being sold and we have a Long Term Capital Gain. We are buying a new house, which will be jointly held by us. I can have hers or my name as 1st name in the property. The Home Loan will be in my name and i will be paying the EMI. She will be contributing the entire sale proceeds of the house being sold towards the new house and also some other past savings

Will she be eligible for Tax exemption on LTCG (Sec 54F) in this case. In this URL attached above, it is mentioned that the the Tax Payer should be independently investing in the new house and the Spouse should not be contributing at all? Is it mandatory?

Even if the property value of the new property is split into two owing to joint ownership, we can still use the full sale proceeds of the house being sold over towards the 50% value of the new house

Can you please throw some light and guide us

Regards
Ajay
Asked 4 years ago in Taxation

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14 Answers

No it is not mandatory in case she is paying than she can get an exemption for that amount.

If the co-owned property is sold, each co-owner has to offer the capital gain as applicable on his share of the building. It may be noted that the apportionment shall be made at the ‘sale consideration’ and ‘cost of acquisition’ level and not at the ‘net taxable capital gains’ level. So, in the case of long-term capital gains on sale of the jointly owned property, whether commercial or residential, each one of the co-owner shall be entitled to claim exemption under Section 54F,the conditions of not owning more than one residential house as prescribed under Section 54F for claiming exemption from long-term capital gains, shall also be considered for each of the co-owners and not for all the co-owners taken together. So each co-owner can get exemption upto there investment.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

In case you are only paying and the flat is in co-ownership than you can claim exemption for complete amount or it is in sole name of your wife and you are paying complete amount than you can claim entire exemption .

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

1. Your wife being the Tax Payer and claimant of the LTCG tax exemption shall have to independently investing in the new house.

2. If the value of the property she is going to purchase is more than the fund she is having, you can gift/loan the difference to her mentioning the same in her I.Tax Return.

Krishna Kishore Ganguly
Advocate, Kolkata
26602 Answers
726 Consultations

5.0 on 5.0

Hello,

Your wife has to independently invest in the house to claim the LTCG tax exemption, for the reason that she is an independent tax payer.

Regards

Anilesh Tewari
Advocate, New Delhi
17940 Answers
377 Consultations

5.0 on 5.0

Hi Ajay,

There is no problem in using the long term capital gain in the new property.

The sale proceed other than the capital gain can be used freely without any restrictions for purchase of any property.

Vimlesh Prasad Mishra
Advocate, Lucknow
6848 Answers
23 Consultations

4.9 on 5.0

You are mixing the loan , emi and capital gains.

If you get loan you will pay the emi and you can take the benefits of interest and principal repayment. She holds the title for her share. I don't see any thing unclear in whole arrangement.

Vimlesh Prasad Mishra
Advocate, Lucknow
6848 Answers
23 Consultations

4.9 on 5.0

My apologies,as I mis-read your line that I have a flat in my wife name as a joint ownership.

So if the old flat is owned by your wife alone and that your are selling than she will only getting exemption.

Though she can get exemption on all amount by showing she is paying all the amount for new flat even if it's co owned by you

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

Your wife would be entitled to tax exemption under section 54F of income tax act as she is investing entire sale proceeds in purchase of flat

2) it is not mandatory that spouse should not be investing any funds in purchase of property

Ajay Sethi
Advocate, Mumbai
87911 Answers
6207 Consultations

5.0 on 5.0

Home loan can be taken in joint names

2) if you are paying EMI wife can claim exemption under section 54 F as she has invested the sale proceeds in purchase of flat and balance amount is being paid by you

Ajay Sethi
Advocate, Mumbai
87911 Answers
6207 Consultations

5.0 on 5.0

1. Long Term Capital Gains (LTCG) can be claimed ONLY by the person who has actually invested in the immovable property. This should be evident from the Individual's Income Tax Returns /Balance Sheet. LTCG can be claimed within TWO years of Property Purchase or Sale of old property.

2. IF Husband or Wife is simply the joint-holder, WITHOUT any investment, THEN Husband /wife CANNOT claim LTCG.

Keep Smiling .... Hemant Agarwal

Hemant Agarwal
Advocate, Mumbai
5612 Answers
25 Consultations

5.0 on 5.0

Dear Sir,

If you ask this question to any Chartered Accountant then you may get better answer.

Kishan Dutt Kalaskar
Advocate, Bangalore
6050 Answers
381 Consultations

4.8 on 5.0

In one of the recent situations that came up before the Delhi High Court; an individual had sold an inherited flat and earned some long term capital gains. At the time of filing his income tax returns, the tax payer had claimed a deduction under section 54F of the Income Tax Act (‘the Act’) on the ground that the sale proceeds were invested in the acquisition of a residential home in the joint names of himself and his wife. 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.

In its observation by the income tax tribunal observed that 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.

On a further appeal with the High Court by the Department, the High Court also agreed to the view adopted by the Tribunal. The High Court noted that the entire purchase consideration was paid only by the assessee and not a single penny was contributed by his wife. It held that a purpose of 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. The 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’.

Your case falls under the above category, therefore your spouse can claim tax exemption on the above grounds

T Kalaiselvan
Advocate, Vellore
78070 Answers
1543 Consultations

5.0 on 5.0

an earlier decision by the Andhra Pradesh High Court where in it was observed that the object of granting exemption under section 54 of the Act is that a person who sells a residential house for the purpose of purchasing another convenient house must be given exemption so far as capital gains are concerned.

The word “assessee” must be given a wide and liberal interpretation so as to include his legal heirs also. Without the liberal interpretation, the object of granting the exemption would get frustrated.

Therefore it is not mandatory or there is any need that she should be an applicant or co-applicant to the loan to be obtained by the spouse.

The exemption under income tax for LTCG has nothing to do with the EMI loan repayment done by you, she will be entitled to exemption as per section 54F.

Relying on this and other decisions by various judicial authorities, the High Court observed that for the purposes of section 54F, the new residential house need not be purchased by the tax payer in his own name nor is it necessary that it should be purchased exclusively in his name. The High Court further observed that the assessee in the said case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. The same has been purchased only in the name of his wife. The fact that the entire investment for the house has come out of the sale proceeds and that there was no contribution from the assessee’s wife is undisputed. In view of the same, the High Court allowed the exemption from long-term capital gains in favour of the tax payer.

T Kalaiselvan
Advocate, Vellore
78070 Answers
1543 Consultations

5.0 on 5.0

1. In the instant case, the Home Loan also should be in her name.

2. You might pay the EMI for her as gift or loan but she will get the LTCG tax exemption for buying the dwelling house by investing the entire amount she got by selling her flat.

3. She can of course show your payment of EMIs as gift or loan in her ITRs.

Krishna Kishore Ganguly
Advocate, Kolkata
26602 Answers
726 Consultations

5.0 on 5.0

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