• Capital Gain from a joint Sale of Land- Investment modes

Hi,

Lets say an individual and his mother own a land coming from legal heirship; and they sold it together after 6 yrs (long term capital gain) for a sale value of say Rs 1.5 crores or so as an example.

Now when they invest back the capital gain to save on income tax please help me with below queries

- Should they be investing only the capital gain from the sale proceeds in purchasing another residential property or a Govt Bond (OR) should they be investing the entire sale value i.e 1.5 cr in a residential property and a govt bond to save tax?

- Do they need to do the investment also jointly Or can they split the sale value/capital gain into 50-50 share and invest in two different residential properties?

- During the sale ,the 1% tax was deducted by the buyer against the son's account where mother is not a joint account holder. So income tax website reflects the entire sale to be only on Son's name; while the sale deed has both son and mother's name. Does this mean investment on Mother's name would not be considered to gain tax benefits?

- is it possible to invest 50 Lakhs today in a Govt bond before June as the party has not finalized on a residential property and are not aware of money required ; but later withdraw from the bond within 1 yr and redirect it to a residential property, if needed. Would capital gain tax be deducted in this case against the 50 lakh that was withdrawn and redirected to residential investment?

- Is there any limit to amount that can be invested in a residential property to save on capital gain; from the sale of land.

Thanks,
Anjana
Asked 3 months ago in Capital Gains Tax from Hyderabad, Telangana

Hi Anjana,

 

Hope you are doing well !!

 

-For claiming exemption from capital gains, investment can be done in :

  1. Residential house property under section 54F: Invest in a ready to move in property within 2 years of sale or purchase land and construct a house property within 3 years of sale.
  2. Eligible bonds under section 54 EC: Invest with 6 months of sale. Such bonds shall be redeemable after 5 years.A taxpayer can invest a maximum of Rs 50 lakh of the capital gains incurred in these bonds 

     

Please note that in order to claim exemption u/s 54F entire sales consideration needs to be invested in new residential property.

 

-They can split the sale value/capital gain into 50-50 share and invest in two different residential properties

 

-No, she can claim capital gain benefits.

 

-54EC bonds come with a lock-in period of 5 years (effective from April 2018) and are non-transferable.

Such bonds cannot be redeemed before five years from date of transfer.

 

To claim full exemption the entire sale receipts have to be invested.

In case entire sale receipts are not invested, the exemption is allowed proportionately.
[Exemption = Cost the new house x Capital Gains/Sale Receipts]

 

Payal Chhajed
CA, Mumbai
2853 Answers
39 Consultations

5.0 on 5.0

Hi,

- Against the sale of the land only two investment options are available for individuals, i.e. either investment in the specified bonds or investment in residential property. Investment in specified bonds is limited to Rs. 50 lacs and too should be made within 6 months of the transfer. Bonds can not be redeemable within 5 years otherwise exemption would be lost and capital gain will arise on sale of bonds. The amount of exemption is the capital gain. In case of new residential property, exemption is available for the investment of net sale consideration subject to other limitations.

 

It is advisable to invest in the new residential property as the bonds has its own limitations.

 

- If you purchase a single house then both can claim exemption.

 

- Ideally TDS should be deducted for the both the PAN i.e. mother & Son. Now the son should pass on the TDS and sale consideration in ITR to you.

 

- No exemption would not be allowed if you withdraw the money from the bonds within 5 years.

 

- Limit is net sale consideration and not capital gain

 

Thanks

Vivek Kumar Arora
CA, Delhi
2942 Answers
144 Consultations

5.0 on 5.0

First of all if mother is a joint owner in the property you must ask the buyer to amend the TDS return and add name of mother and deduct 50% in name of mother. Other income tax department can raise a query that the son is the only owner and show such sale in sons name.

 

Second you have two option since you have sold a land first you can invest in a residential property and for that you need to invest entire sale consideration and second you can invest in bonds and for that you need to invest capital gain amount or 50 lakh whichever is lower and this can be done for both party individually.

 

I wont suggest you to first invest in bond and withdraw it and then invest it in house as you wont get deduction and bonds have lock in period of 5 years either deposit the amount in capital gain account scheme if you are going to purchase house in next 2 years or construct it within next 3 years.

 

If you need any further assistance you can give a call.

 

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo
CA, Jaipur
1981 Answers
17 Consultations

5.0 on 5.0

Dear Madam,

1. Hope both son & mother are party to the transaction. And will treat them joint owners. And tax the gain separatly. If so they can opt either of below option as their wish.

 

2. In this case deduction u/s 54EC & 54 F available.

A. 54EC:

a.Invest only Capital Gain Amount.

b.Maximum deduction 50L. Provided the investment in RE bond or NHAB before 6 months from the date of transfere.

c. Remember: To apply for bond within 6 month from date of transfere.

d. Lockin period for such bond is 5 years from date of investment. You cant with draw.

 

B. If 54F:

a.Invest net sale consideration.

b.Buy residential house within 2 years from date of transfere or construct within 3 years from date of transfere.

c.If before return filing date you are not able to do so, invest the whole unspent amount (if construction started & u spent some money or u advaned if you are buying) in capital gain account in scheduled bank.

d. No limit for the investment.

 

3. If you invest in bond now but later you want to invest in house?. Yes possible but if your decision is before Due date for filing return. And whole of sale consideration deposited in capital gain account scheme.

Shrinidhi Rao
CA, Udupi
38 Answers

Not rated

Hello,

- You have two options to save capital gain on the sale of land. First, by investing the sale consideration in new residential property within the specified time limit under Sec. 54F or you can invest in specified bonds up to Rs. 50 Lacs within 6 months of transfer redeemable after 5 years under Sec. 54EC.

 

- You can split the capital gain into the specified share and invest in two properties, while if you purchase a single property jointly you both can claim exemption.

 

- TDS was required to be deducted of both the owners of the property. It would be better if the buyer can correct his TDS return.

 

- The exemption would be lost if you withdraw the money from the bonds within 5 years.

 

- To claim full exemption, you will have to invest full sale consideration in the new property. If you invest lesser than that, the exemption would also be reduced proportionately.

I hope this answer satisfies your requirement.

 

Regards,

CA Hunny Badlani

Badlani & Associates

Hunny Badlani
CA, Neemuch
794 Answers
1 Consultation

5.0 on 5.0

Hi

 

In case of land, entire sales consideration needs to be invested in a residential house property in order to claim exemption under section 54 F.

For exemption under section 54 EC, only capital gain amount needs to be invested. Max. Investment under section 54 EC would be 50 lacs in an year.

 

2 separate investments can be made.

 

Show equal capital gains in both ITRs. For TDS, show the 50% as of the mother in son's ITR.

 

No. Bonds shall be redeemable only after 5 years. If investment is not made up to due date of return filing, you need to deposit the same in CGDS account.

 

No limit.

 

 

Lakshita Bhandari
CA, Mumbai
3545 Answers
174 Consultations

5.0 on 5.0

 

  1. You have to invest the capital gains to claim exemption and not the entire sale consideration. 
  2. Investments should be made individual by each person. It is not necessary to invest jointly.
  3. Tax should have been deducted in the proportion of ownership held by both the parties. The tax officer would try to create tax liability in the hands of son.  You should make the documents strong to justify that the property was jointly owned.  Also do make a reference, that payments should be proportionally made in both the owners’ bank accounts. The son can make an additional transfer of TDS for the refund he will get from tax authorities.  The buyer should write that for compliance purpose TDS is just deducted from the sons account.
  4. You cannot buy bonds to be sold in a year’s time. You can however keep the money in a capital gains accounts scheme and use it to buy property once finalized.  Also, this new property cannot be sold for 3 years. 
  5. THEre is no such limit

Jasmina Jain Shah
CA, Greater Mumbai
361 Answers
4 Consultations

5.0 on 5.0

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