• Capital gain investment in joint property

My Mother-in-law (aged-65) sold her 20 year old house for 40L and buying new under construction property for 60L which will be completed in less than a year. however she is not having additional capital of 20L for new purchase so she wants to buy property jointly with her married daughter who will contribute rest of the 20L through bank loan. I've two questions on this proposition.
1. Is this joint purchase possible considering above scenarios?
2. Can we make joint property on 50:50 basis where Mother-in-law will invest 30L & daughter will take 30L loan? the remaining 10L with mother-in-law will be used for construction improvement, interior , repair work etc. before completing 2nd  year of capital gain. is this possible? and will it exempt 40L under Sec.54F?

Thanks for you advise.
Asked 11 months ago in Capital Gains Tax from Hyderabad, Telangana
Hi 1. Yes, this can be done in ratio of costs borne. 2. As per 54, you need to invest the capital gain amount. Work out the cost of acquisition by indexing the FMV of the house sold as on 1.4.2001. You need not invest entire 40 lakhs.
Lakshita Bhandari
CA, Mumbai
2243 Answers
81 Consultations

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As your mother in law is buying a new house out of the sale proceeds of an old house, she will be eligible for exemption u/s 54, under which it is sufficient to invest only capital gains part (not the entire sale proceeds) to claim exemption. Hence, you may work out her LTCG and invest that part as a joint owner in the new house to claim exemption u/s 54. The ownership ratio may accordingly be decided. If by investing her LTCG, she can get only say 40% ownership in the new house and her married daughter's contribution is not sufficient she can give loan to her daughter with or without interest. She may even gift the amount to her daughter without attracting any tax liability.
B Vijaya Kumar
CA, Hyderabad
865 Answers
60 Consultations

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Firstly, you are eligible for exemption under section 54and not under section 54F. Under section 54, You don't need to invest the entire sales. You may choose to invest only capital gain amount. Further, you can buy the property in joint name. Its important you clearly mention the proportion of ownership in the ration of investment made by each co owner. Please feel free to call/ revert in case you need more clarity. Thanks and regards Abhishek Dugar CA CS B.Com
Abhishek Dugar
CA, Mumbai
3576 Answers
162 Consultations

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1. Correct 2. You need to get the stamp duty value of the property as on 1.4.2001. that value will be indexed till the date of sale. 3. You don't need any certificate for the calculation. You can use the calculator but do make sure the authenticity of the calculator. It's not necessary every calculator is correct. 4. Yes, she will not to file return for showing the capital gain. Please feel free to call/ revert in case you need more clarity. Thanks and regards Abhishek Dugar CA CS B.Com
Abhishek Dugar
CA, Mumbai
3576 Answers
162 Consultations

5.0 on 5.0

1) Yes, you need to compute indexed cost of acquisition of the property for arriving at long term capital gains. 2) The fair market value as per stamp duty value as on 1st April 2001 will be the basis for arriving at indexed cost of acquisition. Though you purchased the land in 1996, its stamp duty value as on 1st April 2001 as per revenue records will be the basis for arriving at indexed cost of acquisition. 3) You can arrive at the indexed cost of acquisition by the stamp duty value as on 1st April 2001 by multiplying it with the index in the year of sale divided by hundred. Thus if the stamp duty value as on 1st April 2001 is, say, Rs 10 Lakhs, the indexed cost of acquisition in the year of sale, viz., FY 2017-18 will be 27.2 Lakhs, i.e., 10*272/100. 272 is the index prevailing in FY 2017-18. There is no need to submit any documentary evidence, as the index is fixed by the Government itself. 4) YEs, your mother in law needs to file IT return and disclose her capital gains.
B Vijaya Kumar
CA, Hyderabad
865 Answers
60 Consultations

5.0 on 5.0

Dear sir, Yes this scenario is possible. the capital gain arises from the transfer of any long-term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45. Amount which you incurred for repair ,improvement is also exempted.
Shiv Kumar Agarwal
CA, Delhi
284 Answers
61 Consultations

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The sub-registrar office having jurisdiction over your property will be able to give the valuation.
B Vijaya Kumar
CA, Hyderabad
865 Answers
60 Consultations

5.0 on 5.0

Hi, As per law, a property, if jointly purchased, will be owned equally by them, unless it is stated in the agreement that the share of ownership will be in the proportion in which they invest. Your mother-in-law should invest atleast the amount of capital gain to claim exemption not the entire sale consideration which she received from the earlier property. She can retain the remaining amount, exceeding the amount of capital gain, and use it to do the interior of the house. So long as she invests the amount of capital gain in the new house, the entire capital gain will be exempt. Regards, Keerthiga Padmanabhan M.Com., CA, LL.B
Keerthiga Padmanabhan
CA, Greater Mumbai
784 Answers
23 Consultations

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To answer your follow up questions: The difference between the sale consideration and the indexed cost of acquisition will be the long term capital gain. Sale Consideration = Sale Price - Any brokerage or selling expenses incurred Indexed Cost of Acquisition = Cost of property as on 1 April 2001 * 2.72 (Since you bought it before 2001 and 2.72 will be the inflation index assuming the house was sold in 2017-18) Cost of property as on 1 April 2001 can be obtained from the Registrar's Office or by appointed any government registered valuer. It will be preferable to have evidence to substantiate the value as on 1 April 2001. Your mother-in-law will have to file the return for 2017-18 and disclose the amount of capital gain.
Keerthiga Padmanabhan
CA, Greater Mumbai
784 Answers
23 Consultations

5.0 on 5.0

Hello Sir, You can visit the registrar's office to get the valuation as on 01/04/2001. You may ask them for a valuation certificate. Trust this clarifies your query. Feel free to call / get back in case of further clarifications. Thanking You. Regards, Rohit R Sharma BCOM, FCA, LLB, CERT. FAFP
Rohit R Sharma
CA, Mumbai
2104 Answers
91 Consultations

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