Capital gain exemption and Joint ownership for new Property purchase

Q & A Forum › Category: Real Estate › Capital gain exemption and Joint ownership for new Property purchase

vijaykumar asked 8 years ago

Dear sreekath Reddy I and my brother like to sell our separate individual vacant lands for 1Cr each, and like to purchase a new property 600 sft building with 30x50 land in Jayanagar for 3cr. Can we both claim long term capital gain tax. I have read following info on your web site The new property must only be bought on the name of the seller and not on anybody else’s name. Joint ownership can be acceptable but exemption can be limited to the share of ownership. Is this valid transaction please clarify Thank in advance

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Sreekanth Staff answered 8 years ago

Hi, Kindly go through below points.. Exemption U/s 54 cannot be denied for investments made in joint names

As per the existing law, the tax payer can purchase the new property and claim exemption on LTCG of sale of old property. What if the new property is acquired in joint-names?The law does not clearly say that the new property must be bought only in the name of the seller and not on anybody else’s name. Hence, there are interpretations that Joint ownership can be acceptable but exemption can be limited to the share of ownership.
For example : If you sell ‘XYZ’ property and make LTCG of say Rs 10 Lakh, you can use the entire Long Term Capital Gain proceeds on sale of a residential house to buy another house property (residential property) to save Capital Gains tax. In case, you buy the new property in joint-name (self + Spouse names), the LTCG exemption can be limited to the share of ownership say Rs 5 Lakh in this example (if the newly acquired property is jointly owned in the ratio of 50:50).
The Delhi High Court however observed that section 54F does not require that the new residential property should be purchased in the name of the tax payer only, it (Section 54)merely says that the tax payer should have purchased / constructed a ‘residential house’.

(Click on the images to download the court judgement/orders. Courtesy & Source – www.taxguru.in)

As per the above court order – The Assessee was entitled to full exemption u/s 54 when the full amount was invested by the assessee even though the property was purchased in the joint names of the assessee and his brother. The AO had earlier restricted the exemption u/s 54 to the extent of 50% of the value of the new house, which the court did not find any merit in it. (Date of Judgement – Apr 2017)