Hi
If a sale transaction is entered into with the son, the joint owners (2 brothers) shall be liable to capital gain tax as it would be a long term capital gain.
I assume that capital gain tax was also paid at the time of agreement with the builder.
Capital gains tax on ancestral property
An ancestral property was transferred to two brothers (brother A & B). Which was later (2.2 years back) was completely re-built by a builder (4 floors + Still) and handed over three floors to both the brothers and one was sold by the builder to a third party. Now, son of brother B wants to buy the one floor out of 3 floors and also want to take Housing loan on the same. My question is what will be the Capital gain tax in this situation both brothers are retired and one is working as a consultant whereas other is a retired citizen.
Asked 7 years ago in Capital Gains Tax
Brother A and B should gift the property to B son against full value of consideration i.e. stamp duty value of the property. In this case no capital gain would be levied on brother A and B.
Thanks
Hi,
In the given case, both brothers, A &B will be liable to capital gains tax. However, if it is gifted to B's son, there will be no capital gains. However the gift deed will need to be registered.
Regards,
Nikhil.
Hi,
The capital gain will depend upon the fact that how did you treated the taxation of joint development agreement.
Ideally you were liable to pay taxes at the time of entering into JDA with builder. Did you pay capital gain tax at that time.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Thanks all! Hi Nikhil and Vivek, I feel C (B's son) will not be eligible for housing loan in case gifted by brother A & B which is mandatory here. If the property is gifted by Father is Capital gain still valid and at what percentage? Any options where brothers (A & B) can re-invest into another property (new) and avoid capital gain tax?
Asked 7 years ago
Hi Abhishek and Lakshita! Thanks for your feedback. No capital gain tax was given/paid when entered into the agreement with the builder as no transaction was done with the builder. Brothers went into an agreement where they gave one floor (out of 4 floors built) and builder re-built the place and sold one of his portion/one floor.
Asked 7 years ago
Yes, A&B can re-invest the capital gain amount in another property or NHAI/Rec bonds to get exemption from capital gain taxes.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Gift is certainly not an option for your case. By gifting, only mortgage loan could be taken. A cost benefit analysis can be done to know whether holding loan benefits are worth for paying capital gain taxes.
Yes, the co-owners can claim section 54 exemption by reinvesting in another house property or 54EC bonds upto a max of 50 lacs.
Such agreements are taxable as capital gains. In this case, the FMV of the 3 floors withheld by the owners shall be considered as sale proceeds in the year of agreement.
However, you could have claimed section 54 exemption of reinvestment and ultimately there would not have been any tax liability.
You might end up with an enquiry regarding this.
When you give Property to builder for Construction and builder receive some shares from the property and you receive part share, it is called joint development agreement (JDA).
Capital gain was applicable on JDA in the year of entering into JDA. The tax authorities may issue notice of the come to know about this.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Thank you Abhishek and Lakshita! As far as gifting is concerned 50% share owned by B can be giften to his son and balance property can be registered. This has been clarified by the loan agencies. Other thing which was also clarified lenders (loan agencies) have agreed to issue the entire sanctioned loan amount to brother A (after getting a writing from brother B). Is there any associated risk or repercussion? Do they (brother A/B) need to open any separate bank account for re-investing into House property or 54EC bonds?
Asked 7 years ago
Firstly, even in case of 50% of the gifted property, registration needs to be done.
Secondly, if the loan is in respect of 50% of A's share, it will be directly paid to him by the bank.
For 54EC, amount of capital gains have to invested within 6 months of sale.
For house property purchase/construction, within 2/3 years of sale.
If the amounts above are not invested before due date of return filing, it has to be deposited in capital gain deposit account.
Hi,
Registry will happen for the entire property and not only for the non gift portion.
Yes, A will have to open a separate bank account if he choose to reinvest in another house property and don't invest the money in house property till the due date of filing of return.
However, in case of bonds, he has to reinvest the money within 6 months from the date of transaction and don't need to open any separate bank account.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Thanks Lakshita and Abhisbek again! Yes gift deed needs to be executed in case brother B plans to gift his portion to his son. My small query is if the registered amount of the property is Is 10 and 50% has been giften to his son (using gift deed) will the stamp duty happen on RS 5 or entire RS 10 amount?
Asked 7 years ago
Hi,
Stamp duty will be paid on entire 10 lacs. 5 lacs on gift deed and 5 lacs on sale deed.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
The stamp duty is to be paid on the gifted property also. So, considering Rs 10 is in accordance with the stamp duty value of tge property, stamp duty shall be paid on gift deed for Rs 5 and on sale deed for Rs 5.
Hi Abhishek. Let me re-frame my query. If the gift deed is done beforehand (Rs 5.0) the registry will happen on entire Rs 10.0 or balance 50% portion of Rs 5.0?
Asked 7 years ago
There are 2 separate registrations here:
1. Registration of gift deed for 50% share.
2. Registration of sale deed for 50% share.
Sorry I don't get your question.
Let me rephrase my response. Let's divide the property into two parts. Part A ( gift) and Part B (Sale).
For part A, you will execute a gift deed and you will have to register the gift deed and pay stamp duty on 5 lacs of stamp value.
For part B, you will execute sale deed and need to pay stamp duty on sale consideration or stamp duty value of 5 lacs, whichever is higher.
I hope that clarifies your doubts.
In case, something is not clear, request you to take phone consultation.
Hi, yes you can reinvest the capital gains to buy a residential property within 2 years or construct a residential property within 3 years of transfer of the property to save capital gains tax. You can also invest in specified bonds to save taxes
If the father gifts to his son, there is no capital gains tax
Regards,
Nikhil
Both A and B will need to open a separate bank account to deposit the capital gains and then invest in bonds u/s 54EC.
As far as the registry and stamp duty is concerned, there will be 2 registry - one on gift deed and the other on sale deed. Stamp duty will have to be paid on both of it separately. So net net, stamp duty will have to be paid on total 10.
Regards,
Nikhil.
Dear All, thanks for your active participation and this has taken care of majority of my doubts. I have one last set of queries and need your expert opinion: Case A) : Is there any limit as far as number of properties are concerned when it comes to re-investing into 54EC bonds or re-investing into a property? Example if A has already 2 properties in his name can he route another property or there's any limit as far as number of properties against an individual? Case B) If the property value as per circle rate is Rs 10 and son has got a sanctioned loan of Rs 7 and if he decides to go with option of 50% gift deed can he still avail Rs 7 as sanctioned loan or the loan amount will also get divide into Rs 3.5? In another case if son decides to register the property on full value (without gift deed) and bank ready to issue the full cheque (Rs 7.0) to person A will there by any repurcursions for person B (father)? I will be pleased if experts can give any additional inputs on this matter.
Asked 7 years ago
A) in your case, No, Since it's a house property which is being sold which is covered under section 54 and section 54 has no such condition.
B) the sale transaction should be equal to or above the circle rate. In case 50% is gifted and loan is sanctioned of 7 lacs for the other 50%, sale deed would be for 7 lacs and deposited to your uncle's account only.
If 100% sale transaction is done, sale deed would be of minimum Rs. 10, no matter loan is sanctioned for Rs. 7 only.
Please let us know the object of this transaction, so that the best tax planning could be done.
Hi,
For your first question, the answer is No as there is no such condition u/s 54 of Income Tax act.
For the second question, can you elaborate further as to what exactly are you trying to achieve and then I can suitably answer.
Regards,
Nikhil.
Dear Lakshita and Nikhil thanks for your clarification. My point A) is clarified coming to the balance situation as stated in my earlier messages taking house loan is a pre-requirement as there are two owners A) & B) where the buyer is son of B: i) Property cost = Rs 10 (as per the circle rate) ii) sanctioned loan amount = Rs 70 Bank X has sanctioned the loan of Rs 7 and even ready to disburse the full amount to person A); Whereas other bank Y has also sanctioned the loan of Rs 7 and agreed to disburse when buyer gets the gift deed process done. Hence, I am interested to know which is the better mode Gift Deed or getting the loan from Bank X and make the entire amount cheque to person A).
Asked 7 years ago
Dear Lakshita and Nikhil thanks for your clarification. My point A) is clarified coming to the balance situation as stated in my earlier messages taking house loan is a pre-requirement as there are two owners A) & B) where the buyer is son of B: i) Property cost = Rs 10 (as per the circle rate) ii) sanctioned loan amount = Rs 70 Bank X has sanctioned the loan of Rs 7 and even ready to disburse the full amount to person A); Whereas other bank Y has also sanctioned the loan of Rs 7 and agreed to disburse when buyer gets the gift deed process done. Hence, I am interested to know which is the better mode Gift Deed or getting the loan from Bank X and make the entire amount cheque to person A).
Asked 7 years ago
Anyways, before or later, you'll have to get gift deed registered.
But, it's better to register it before as you can easily show the gift at circle rate I.e. Rs.5.
There may be valuation problems later with FMV being coming to Rs. 7.
So, I'd suggest to first go with gift deed and then with sale deed.
I dont think any one process has any significant advantage over the other. However it is advisable to get the gift deed done first and then get the loan so that all the documents are in order.
Regards,
Nikhil
Dear Lakshita and Nikhil thanks for another feedback. As stated in my above note; bank X is ready to disburse the full sanctioned amount (Rs 7) to brother A) after getting an self-declaration from brother B). In that case, does buyer still need to go with gift deed option? Can't that buyer go with registry and followed by above disbursement process? What's FMV?
Asked 7 years ago
Dear Lakshita and Nikhil thanks for another feedback. As stated in my above note; bank X is ready to disburse the full sanctioned amount (Rs 7) to brother A) after getting an self-declaration from brother B). In that case, does buyer still need to go with gift deed option? Can't that buyer go with registry and followed by above disbursement process? What's FMV?
Asked 7 years ago
Hi,
No there is no such restriction on number of properties that yo can already own.
I din't get the second question.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Gift deed option was suggested to minimise the capital gains tax. If gift deed is not made and registered, capital gains tax will have to be paid by both A and B.
Regards,
Nikhil.
FMV means fair market value of the property.
Without getting a gift deed registered, you don't become owner of that property.
In case, you want only Rs. 7 loan, you can become owner of the 50% property and rest 50% property shall be your father's. The sale deed with your uncle shall specify his share of property being sold.
Dear Nikhil thanks for your feedback. Regarding capital gain tax I was advised following by other experts on Taxfull: Capital gain tax can be avoided if the amount in another property or NHAI/Rec bonds. Hope we are on the same page.
Asked 7 years ago
Yes, we are on the same page?
Yes. Capital gain tax can be avoided if the amount in another property or NHAI/Rec bonds.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
You were required to disclose the transaction with the builder (JDA) in the ITR of the concerned year. Might be you will receive the notice from the department for such non-disclosure.
Brother B is exempt from tax as the entire transaction falls under the definition of Gift.
Brother A needs to pay tax on LTCG if amount is not reinvested. He can reinvest the amount in bonds or property. There is no limit for reinvestment in the property.
Son C will claim the benefit of interest on loan and principal component as deduction.
As the property which needs to be financed is jointly owned by A and B therefore for B share gift deed is required in all the cases and for A share you need to pay him through bank loan.
.
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