Capital Gains Tax Liability

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Querist : Anonymous

Querist : Anonymous (Querist)

21 February 2011 A (Husband) & B (Wife) are owning two separate properties. B intends to sell the property & acquire another one in lieu of the earlier property.The property held by B has been mortgaged. The mortgage would be transferred to new property. B,while acquiring new property wants to enter into co-ownership agreement with A so that they can avail loan on A's property. Can anybody enlighten on capital gains tax implication on the same?

CA. Lohith Jagadeesh

CA. Lohith Jagadeesh (Expert)
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22 February 2011 Hi

Will get back to u with complete wrkngs & Info

Thank you

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CA.Lohith.J
B.Com,ACA,CS,(ICWA),SAPM Hons,ITR Hons

Querist : Anonymous

Querist : Anonymous (Querist)

27 February 2011 Yet to receive reply on this query

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Asha Kanta Sharma online

Asha Kanta Sharma

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18 July 2024 Certainly! Let's break down the capital gains tax implications based on the scenario described for B (Wife) who intends to sell her property and acquire another one:

### 1. Capital Gains Tax on Sale of Property:

- **Calculation**: When B sells her property, capital gains tax will be applicable on the profit earned from the sale. The capital gains are computed as follows:

**Capital Gains = Sale Consideration - Indexed Cost of Acquisition - Indexed Cost of Improvement - Expenses**

- **Sale Consideration**: The amount received from selling the property.
- **Indexed Cost of Acquisition**: The original purchase price adjusted for inflation using the Cost Inflation Index (CII).
- **Indexed Cost of Improvement**: Any capital improvements made to the property, adjusted for inflation using CII.
- **Expenses**: Any expenses directly related to the transfer of property (like brokerage, legal fees, etc.).

- **Tax Rates**:
- **Long Term Capital Gains (LTCG)**: If the property has been held for more than 24 months, the gains are taxed at 20% after indexation.
- **Short Term Capital Gains (STCG)**: If the property is held for 24 months or less, gains are taxed at the applicable income tax slab rates.

### 2. Exemption under Section 54:

- **Reinvestment**: B can claim exemption under **Section 54** if the capital gains from the sale of her property are reinvested in:

- **Another Residential Property**: The new property must be purchased within 1 year before or 2 years after the sale, or constructed within 3 years from the date of sale.
- **Conditions**: The exemption is limited to the amount of capital gains or the cost of the new property, whichever is lower.

### 3. Co-Ownership and Mortgage Transfer:

- **Co-Ownership**: If B intends to enter into a co-ownership agreement with A (Husband) for the new property, they can jointly own it. This does not affect B's eligibility to claim the exemption under Section 54 as long as she meets the reinvestment criteria.

- **Mortgage Transfer**: If the mortgage from B's old property is transferred to the new property, it should not affect the exemption under Section 54, provided the new property is residential and other conditions are met.

### Conclusion:

B (Wife) should carefully calculate the capital gains tax liability from the sale of her property and ensure compliance with the reinvestment conditions under Section 54 to claim exemption. Entering into a co-ownership agreement with A for the new property and transferring the existing mortgage are feasible options, but they should not impact B's eligibility for the exemption if all criteria are fulfilled. It's advisable to consult with a tax advisor to navigate through the specific details and ensure tax optimization in this transaction.