My father in law sold a property of Rs 90 lac and reinvested the money by buying another flat of Rs 1.90 crore. He insisted that either his or his son's name could be the first name in the sale deed so as to get the benefit of capital gains tax. Please clarify whether daughter in law's name could have been the first name in sale Deed as joint owner with father in law; without losing any captial gains tax exemption benefit.
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Under section 54, You don't need to invest the entire sales consideration .You may choose to invest only capital gain amount.
Further, your father in law can buy the property in joint name. It’s important you clearly mention the proportion of ownership in the ration of investment made by each co owner.
In case of Joint ownership of father in law and daughter in law; with entire proceeds from sale of house in name of father in law are invested in new property and no investment from daughter in law. Can the entire amount still be tax free?
Capital gains are not more than 50 per cent of cost of new property
father in law would be entitled to claim long term capital gains tax exemption for 90 lakhs exempted by him
Yes it can be but it’s better to put son name
The father in law can invest in the purchase of new property irrespective of individual purchase or joint purchase.
The capital gains he got from selling his previous immovable property can be invested into the new purchase to claim exemption under section 54 of income tax.
The tax exemption can be availed to the extent of capital gains alone and not on the entire sale proceeds.
If you propose for joint purchase then it is always better to mention the percentage of share in the property in the sale deed since there's no investment from her side.
Dear client,
If the proceeds from the sale of one property are reinvested in another residential property, the individual may be free from capital gains tax under Indian tax regulations, specifically under Section 54 of the Income Tax Act. But the most important requirement is that the property in which the reinvestment is made must belong to the taxpayer. It could be difficult to claim complete capital gains tax exemption in the scenario you described if the daughter-in-law and the father-in-law are listed as joint owners on the selling deed and all of the sale's proceeds are invested in the new property. This is due to the possibility that the daughter-in-law may not be eligible for the Section 54 exemption because she is not the original property owner. It is best to have the father-in-law, who is the property's legitimate owner, included as the first name on the selling deed in order to optimize tax benefits. This guarantees that the capital gains exemption is clearer and complies with Section 54's requirements.
Hope this helps you.
- Under the Income Tax Act, property is regarded as a capital asset and any gains arising from its sale is taxable as Capital Gains.
- Further, if the property is held for less than three years prior to its sale, it is termed as a short-term capital asset and any gain arising from the sale is treated as a short-term capital gain.
- Further, if the property is sold after a holding period of more than three years, it is to be treated as a long-term capital asset and a gain arising from its sale is assessed as long-term capital gains
- Further, as per Section 54 & 54 F of the Income Tax Act, you can re-invest the long term capital gains amount in residential house property and claim an exemption therein.
- Further , no tax shall be paid , if you use the entire gain to buy another house within 2 years from the selling of your old property .
- Further, the property can be purchased in joint ownership as well for getting exemption .
