Tax rule on wife's property sold

1) The IT return for LTCG will have to be filed by your wife, as this is her income and not your income.

2) As your wife is not a business person/professional, she needs to file ITR 2.

3) Make an application to the Sub-registrar requesting for providing valuation as on 1/1/81. If you do not still get or the sub-registrar is unable to provide valuation, you may make a best estimate of the valuation as on 1/1/81.

4) As the property value sold is only Rs 20 Lakhs, I suggest that you may deposit the entire amount in Capital Gains bonds, which have a lock in period of 3 years. This money can be withdrawn after 3 years and used for any purpose, as you may wish. Even if there is an error in valuation or difference of opinion by the assessing offer, it has no material impact, as the entire capital gains will any way be exempt.

5) You can save LTCG if you invest the entire sale proceeds in the property u/s 54F, provided the house is registered in her name. However, it will create problems for you in getting housing loan and claim deductions towards interest and repayment of principal amounts in your IT Returns.

In view of the above, I suggest that you should invest in LTCG Bonds and withdraw the amount after the lock in period of 3 years.

Hi,

As this property is being inherited by your wife. So this income will not be clubbed with your income for the purpose of Income Tax.

She is required to file Income Tax return ITR 2 to show this income.

Yes, you can invest jointly in the property and can take take loan for the remaining part. and you will be eligible for whole deduction of loan amount while filing the return.

if the invested house would be self occupied then you can claim deduction under section 24 for the interest amount of upto 2 Lakhs Rs (if certain conditions are fulfilled, like possession of the house, etc)

and also deduction the Principal amount under section 80 C upto Rs 150000/- in the whole you will get the benefir of Rs 350000/-

Income Tax benefit you can avail upto two houses. so even you owned one house in Lucknow ( i am also from Lucknow :)) still you can claim benefit of second house.

You can get the valuation done from the certified Valuation officer. or can get the BBMP record for 1981.

As it is important to get the cost of that land to calculate the Capital gain amount.

i am sharing the capital gain options in my second reply.

Hi,

As regarding Money you would received from sale proceeds , First you need to calculate the capital gain as below

Indexed Cost of Acquisition = (Actual cost of purchase) * (CII Of Year of Sale)/(CII of Year of Purchase).

Indexed Cost of Improvement = (Actual cost of improvement) * (CII Of Year of Sale)/(CII of Year of cost of improvement).

Any Selling Expense like Brokerage Expense

Capital Gain = (Sale Price MINUS (Indexed Cost of Acquisition + Indexed Cost of Improvement + Selling Expense).

This capital gain you are required to invest under section 54 to avoid paying any taxes on that.

there are three ways in which you can get capital gain exemption

if you planning to purchase another property or have already purchased one year back from the sale of the property then

under section 54:

The exemption under this section is only available to persons that satisfy the following conditions:

An individual or Hindu Undivided Family (HUF) that legally maintains ownership of the house property;

The house property is used only for residential purposes;

The house property is a long term capital asset, and was not transferred or sold within the first three years after the initial date of purchase or construction.

To claim the exemption, one must invest the proceeds derived from the sale of the house property into another residential house either within two years from the date of the sale or one year prior to sale, or one must invest in the construction of a new house within three years of the sale.

The exemption amount will be:

Equal to the amount of the capital gains if the cost of the new house property is greater than the capital gains; or

Equal to the cost of the new house property if the cost is less than the capital gains.

Meanwhile you can park your capital gain (full amount or utilized amount) in CGAS (Capital Gain Account Scheme)

This is only a stop-gap arrangement, as the funds have to be used to buy or build a house within the period specified.

The deposited money can be used only to buy or construct a residential house within the prescribed time frame.

If you withdraw funds from this account, they have to be used within 60 days.

If you do not utilize the amount within three years of the sale of the first property, such un-utilized amount will be treated as LTCG this will lead to taxation of the unutilized amount as long-term capital gain after three years of the sale of the first / original property.

The interest rates paid on these accounts are the same as those on regular savings and term deposits. Kindly note that interest earned on this account is taxable.

You can invest the capital gain amount in bonds under section 54EC:

Capital gains from sale of any long-term asset can be claimed as tax-exempt under Section 54EC of the Income-Tax Act by investing in notified bonds within six months of the transfer of Asset.

These bonds are issued by the Rural Electrification Corporation and the National Highways Authority of India.

The exemption is equal to the investment or the capital gain, whichever is lower. If you transfer or take a loan against these bonds within three years, the capital gain will become taxable.

These are redeemable after 3 years and must not be sold before the lapse of 3 years from the date of sale of the house property.

You are allowed a period of 6 months to invest in these bonds, but before the Income Tax Return filing date (to claim this exemption).

You can invest a maximum of Rs 50 lakh during a financial year in these bonds as per Budget 2015-16.

Dear Sir,

1. Your wife will have to file IT return for LTCG. You dont need to include it in your ITR. you can continue to file ITR1 and your wife needs to file ITR 2.

2. IF it is not possible to get accurate valuation, you can make a best estimate of the valuation as on 1/1/81 from any registered valuer.

3. In my opinion, you should invest the entire amount in NHAI/REC bonds, which have a lock in period of 3 years.

4. You can save LTCG if you invest the entire sale proceeds in the property u/s 54F, provided the house is registered in your wife's name but it may create hurdles in getting housing loan and claim deductions in your IT Returns.

Please feel free to call/revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.Com

Hi,

Kindly find the below the link for the article, it will clear all your doubts.

http://www.business-standard.com/article/pf/capital-gains-tax-exemption-for-joint-property-also-113020901091_1.html

there are many other case laws where an assesse bought the house in other joint owner name and able to claim the capital gain exemption.

Even if you dont have your first name in the property and are still eligible for taking the deduction of home loan while filing the IT return.

Loan you can take in your name or in joint name (you can take loan by keep your wife name first as you will get loan at lower interest rate) still you will be eligible for full deduction of home loan.

Sir

1. Firstly it is your wife personal income on which she is liable to pay tax.

2. If you cannot get 1981 value then you need to invest full amount of consideration for claiming exemption . You can purchase house/flat jointly but need to ensure that the amount of capital gains is invested in the said property. For ex. If the property is for 30 Lakhs then 20 lakhs should be from the capital gains and remaining can be from your side.

3. As per your example it is perfectly alright if you invest 20 lakhs and take 30 Lakhs loan in your name and jointly register the property.

The query is suitable answered by experts.

It can be joint ownership for the purposes of claiming exemption u/s 54F.

You may be able to get the housing loan, even if the property is registered in the name of your wife, by making her also as a co-obligant.