• Capital gains and joint ownership

Dear Sir,

I have purchased a house in 2010 in my name and sold the house in July/2016.  Based on the sale (after indexation) got the Capital Gains of 60 L  and planning to re-invest in a house for 90 L by end of this year in a house which is being constructed. My questions are

1. Earlier the property which I bought and sold was in my name (only) and for the new purchase, I am planning to include my wife name in the deed (Joint Ownership), If I do that, will I be eligible for the Capital Gains completely (60 L) and want to make sure, there's no issue in adding my wife's name to the Deed. If I do the Joint ownership will my capital gains limited to the share of ownership ? 

2. For the remaining portion of the 30 L, I am planning to take Bank Loan and purchase the property, will that be any problem in doing so

Please advice
Asked 2 months ago in Property Law from United States
Religion: Hindu
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) the entire purchase consideration for propertywill be  paid only by you  and not a single penny  contributed by your  wife.  A 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) hence you would be eligible for claiming exemption from long term capital gains for full Rs 60 lakhs 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
5.0 on 5.0
Hi 
1) Yes. You can go ahead and purchase the property in the joint names of yourself and your wife. 
2) There will be no issue at all in claiming capital gains to the extent of 60Lakhs. 
3) Capital gains will not be limited to the share of ownership.
4) Please refer to leading case law on the query posted by you. 
4a)  Exemption from capital gain under section 54F is available when the house is purchased jointly with spouse, if the taxpayer, invests wholly in it. [CIT v. Ravinder Kumar Arora [2011] 15 taxmann.com 307/203 Taxman 289 (Delhi)]
4b) In this case the taxpayer who was an individual sold a plot of land and claimed capital gains arising therefrom as exempt under section 54F by purchasing residential house property in the joint name with his wife to avoid litigation after his death. 
4c) The tax authority allowed only half of the exemption claimed on the ground that the property was purchased jointly with his wife's name. 
4d) On appeal, while the first appellate authority ruled in favour of the tax authority, the Tribunal ruled in favour of the taxpayer. Aggrieved by this the tax authority appealed to the High Court.
4e)It was held that the taxpayer independently invested in the purchase of the house property, though jointly with his wife and paid stamp duty, corporation tax, commission and legal expenses in connection with the purchase. 4f) His wife did not invest any amount and, therefore, the conditions under section 54F of the ITA stood fulfilled and the property had to be treated as purchased in his name. 
4g) Purchase of the property in joint name would not make any difference.
4h)  The taxpayer was the actual and constructive owner of the property. Section 54F states that the property should be purchased by the taxpayer but does not stipulate that it should be purchased in the name of the taxpayer only. 
4i) Hyper-technical ground should not impede the object of the provision which is to be provide impetus to housing construction. 
4j) The court also placed reliance on various decisions of the High Courts in granting exemption under similar circumstances under section 54. Thus, the claim of the taxpayer was allowed.

Hope this helps. 
Rajgopalan Sripathi
Advocate, Hyderabad
868 Answers
43 Consultations
5.0 on 5.0
1. Adding of name of wife will not hamper the Capital Gain tax calculation and exemptions.
2. There will not be any problem otherwise if you got for bank loan for remaining portion.
Devajyoti Barman
Advocate, Kolkata
5131 Answers
54 Consultations
4.9 on 5.0
1. You qualify for capital gains if you as section 54 F does not mandate that the house should be purchased in the name of the tax payer only. It merely says that the tax payer should have purchased or constructed a residential house. Your capital gains will not be limited to your share.

2. Subject to the positive due diligence of the bank there should be no problem in obtaining the loan.
Ashish Davessar
Advocate, Jaipur
18049 Answers
445 Consultations
5.0 on 5.0
1) on sale of yiur property  you can invest  the sale proceeds and purchase of property in joint names and claim benefit under section 54

2) capital gains of Rs 60 lakhs should be invested in purchase of new property 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
5.0 on 5.0
1. The new house has to be bought one year before the transfer of the first house or within two years after the sale. For an Under construction property or flat , the construction has to be completed within three years of the transfer of the first property.

2. The funds received from the sale of your house are not mandatorily required to be used for the purchase of new house. What is required is that you purchase a new property for an amount equal to the capital gains. The purchase can also be made with the help of a home loan.
Ashish Davessar
Advocate, Jaipur
18049 Answers
445 Consultations
5.0 on 5.0
1. Your capital gain (or its exemption) is not limited to your ownership of the new property where you have invested the said capital gain. Your name should feature at first of the own names being the joint owners of the said property.

2. No. After investing the entire capital gain of Rs.60 lakhs, you can add up further investment to buy the new property.
Krishna Kishore Ganguly
Advocate, Kolkata
12027 Answers
226 Consultations
5.0 on 5.0
1. Yes, you can go for buying a new property in the joint name of yourself and your wife by investing the capital gain you received by selling the property wherein your wife was not the co-owner and also where she has not invested any amount for buying the new property.

2. You shall have to invest the entire capital gain you made by investing in to a new dwelling house. If you take loan of Rs.40 laks and invest only Rs.20 laks from your Capital gain of Rs.60 lakhs, you shall have to pay capital gain tax on Rs.40 lakhs whch you have not invested in buying the new dwelling house fro Rs.60 lakhs. 
Krishna Kishore Ganguly
Advocate, Kolkata
12027 Answers
226 Consultations
5.0 on 5.0
Any capital asset held by a person for more than 36 months before being sold, is treated as a long term capital asset. Gains from transfer of long-term capital asset will be Long Term Capital Gains (LTCG).

You can avoid taxes on LTCG by investing in another property or specified assets as per the Income Tax Act. If you have sold a residential property, then you can claim exemption under Section 54 by investing in another residential property from the sales proceeds 

Now the question is about making your wife as a joint owner in the property proposed to be bought now utilising the said amount.  You can very well include your wife's name as a joint owner to the property proposed to be bought now. Joint ownership can be acceptable but exemption can be limited to the share of ownership.





For availing bank loan after utilising the capital gains fully, there should not be any problem to that. Calculation of Capital Gains Tax on sale of property can be sometimes be a tricky one. It is advisable to exercise caution when claiming Capital Gains Tax Exemptions. When in doubt, kindly consult a tax expert or a Chartered Accountant.
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
5.0 on 5.0
1. Does the same applies for Section 54 : ( Old Asset - Residential Property) ? mine is a residential property which i sold, so can I go for Joint ownership where my wife was not part of the old sale and now for the new purchase, I want to add her name. 
In this new purchase, she's not going to contribute any money and entire proceeds is going to come from me.

 Joint ownership can be acceptable but exemption can be limited to the share of ownership.
Your wife can be a joint owner to the property proposed to buy.






2. If I am not investing for 90 L and if I am buying only for 60 L and in that scenario, can I go for a bank loan for 40 L and contribute remaining 20 L from me which makes 60 L, that's the capital gain I got. Is it mandatory the 60 L should come from the source which I got out of Capital gain or irrespective of the composition, I need to invest 60 L including a bank loan,

Section 54 of the Income Tax Act entitles a person to tax exemption on profit earned if that entire profit amount is used to buy another house. The seller can buy a new house within 2 years from the date of sale of his previous property or construct a new house within 3 years from the date of sale.

Where the transfer is by way of exchange of asset to another fair market value of the asset received is the full value of the consideration. Thus whatever consideration amount utilised from the capital gains shall become eligible for exemption and not the bank loan to suffice the balance  capital gains amount.  
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
5.0 on 5.0

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