Capital gain
This query is : Resolved
12 June 2015
one of my client sold a commercial property which is on his name and now in place of that he purchase a residential property in his wife name.
now will he gets rebate u/s 54F of capital gain or not.
and will new property clubbed in his income or not.
12 June 2015
Was your client claiming depreciation on the commercial property? If yes, then the capital gain on its sale is STCG and no exemption can be claimed by him.
18 July 2024
In the scenario you've described, your client sold a commercial property and purchased a residential property in his wife's name. Let's address the key points regarding the eligibility for deduction under section 54F of the Income Tax Act, 1961, and the tax implications:
### 1. Eligibility for deduction under section 54F:
- **Section 54F** provides for a deduction in case of long-term capital gains arising from the sale of any asset other than a residential house, when the taxpayer purchases a residential house within the specified time period.
- For claiming deduction under section 54F:
- The property sold must not be a residential house.
- The taxpayer should purchase a residential house either 1 year before or 2 years after the date of transfer of the original asset (in this case, the commercial property).
- Alternatively, the taxpayer can construct a residential house within 3 years from the date of transfer.
- **In your client's case:**
- The commercial property sold should not have been a residential house.
- Your client has purchased a residential property in his wife's name.
- **Key considerations:**
- **Ownership:** The property purchased for availing section 54F deduction should be in the taxpayer's name or jointly with the taxpayer.
- **Investment by Spouse:** If the residential property is purchased in the wife's name alone, without joint ownership or consideration paid from the client's taxable income, it may not qualify for deduction under section 54F for your client.
- **Clubbing of Income:** If the residential property is solely in the wife's name and the consideration has been paid from her own funds (not from the client's income), it generally would not be clubbed with the client's income.
### 2. Clubbing of income:
- **Income Tax Clubbing Provisions:** Under the Income Tax Act, there are provisions for clubbing income in certain cases where income is diverted to or arises in the hands of another person (like a spouse).
- **Conditions for clubbing:** Generally, income from assets transferred to a spouse without adequate consideration is clubbed with the income of the transferor.
- **In your client's case:**
- If the residential property is purchased in the wife's name and the funds are from her own sources (not from the client's income), the income from the property (such as rental income or gains from subsequent sale) would generally be treated as the wife's income and not clubbed with the client's income.
### Conclusion:
- Your client may not be eligible for deduction under section 54F if the residential property is solely in his wife's name and the funds for purchase are not traceable to his own taxable income.
- The residential property, if purchased solely in the wife's name with her own funds, would not be clubbed with your client's income.
It's advisable for your client to consult with a tax advisor to assess the specific details of the transaction and ensure compliance with tax laws, especially regarding the eligibility for section 54F deduction and the implications of property ownership and income clubbing.
### 1. Eligibility for deduction under section 54F:
- **Section 54F** provides for a deduction in case of long-term capital gains arising from the sale of any asset other than a residential house, when the taxpayer purchases a residential house within the specified time period.
- For claiming deduction under section 54F:
- The property sold must not be a residential house.
- The taxpayer should purchase a residential house either 1 year before or 2 years after the date of transfer of the original asset (in this case, the commercial property).
- Alternatively, the taxpayer can construct a residential house within 3 years from the date of transfer.
- **In your client's case:**
- The commercial property sold should not have been a residential house.
- Your client has purchased a residential property in his wife's name.
- **Key considerations:**
- **Ownership:** The property purchased for availing section 54F deduction should be in the taxpayer's name or jointly with the taxpayer.
- **Investment by Spouse:** If the residential property is purchased in the wife's name alone, without joint ownership or consideration paid from the client's taxable income, it may not qualify for deduction under section 54F for your client.
- **Clubbing of Income:** If the residential property is solely in the wife's name and the consideration has been paid from her own funds (not from the client's income), it generally would not be clubbed with the client's income.
### 2. Clubbing of income:
- **Income Tax Clubbing Provisions:** Under the Income Tax Act, there are provisions for clubbing income in certain cases where income is diverted to or arises in the hands of another person (like a spouse).
- **Conditions for clubbing:** Generally, income from assets transferred to a spouse without adequate consideration is clubbed with the income of the transferor.
- **In your client's case:**
- If the residential property is purchased in the wife's name and the funds are from her own sources (not from the client's income), the income from the property (such as rental income or gains from subsequent sale) would generally be treated as the wife's income and not clubbed with the client's income.
### Conclusion:
- Your client may not be eligible for deduction under section 54F if the residential property is solely in his wife's name and the funds for purchase are not traceable to his own taxable income.
- The residential property, if purchased solely in the wife's name with her own funds, would not be clubbed with your client's income.
It's advisable for your client to consult with a tax advisor to assess the specific details of the transaction and ensure compliance with tax laws, especially regarding the eligibility for section 54F deduction and the implications of property ownership and income clubbing.
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