Property jointly held selling and buying - tax implications

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 January 2015 We (myself and my wife) jointly own a property- residential flat and got a buyer to sell. Is it necessary that the sale proceeds need to be divided between the joint owners i.e. 50% of payment will go me and rest 50% to my wife, which means two bank cheques / draft from the buyer. If so then, whether can both these cheques be deposited to the bank account jointly held by both of us? Also as per current Income Tax rule for any property transaction more than Rs 50 Lakhs, whether 1% of Sale Consideration amount to be deposited by the Buyer (TDS) needs to be equally divided between me and my wife in our respective PAN account? May be noted that the subject property being sold was acquired 7 years back from a Developer and major financing was done from Bank Loan in my name.
Next when we go to buy a property re-investing the Sale proceeds from the sold joint property, is it necessary that we have to buy this property in the joint name (me and my wife) to avail the Capital Gain Tax exemption u/s 54? If the property cannot be purchased before the last date of filing Income Tax return of the year, whether the Capital Gain Tax from the sold property to be deposited equally divided between both me and my wife – under the new Capital Gain Account Scheme introduced recently.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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24 January 2015 1. As major financing was done from loan taken in your name then it is not necessary that you divide it 50-50. You can define the percentage of ownership and accordingly divide the sales consideration.
.
2. You can request the buyer to deduct TDS in the proportion of the sales consideration being paid to the co-owners.
.
3. S. 54.:
Purchasing a joint property is not necessary. You and your wife can purchase separate houses also.
4.
You can deposit the amount proportionately
in the CG A/c.
.

Querist : Anonymous

Querist : Anonymous (Querist)

24 January 2015 Many thanks for the reply. However still a question. With reference to point no. 3 (on S.54), If it is only my investment and my wife has not invested any money to buy the property, can I receive the entire sale consideration in my name only and TDS also applies to my PAN account? If so, I shall can claim Capital Gain Tax exemption for the entire sale consideration amount.
If the above is not reasonable / logical and the sale consideration money has to be divided (say 95%- me & 5% -wife),then can I purchase the new property only in my name and claim full exemption on capital gain tax for the entire sale consideration amount?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 August 2024 Here's a comprehensive guide to the tax implications and procedural aspects related to the sale of a jointly held property and the subsequent purchase of a new property:

### **1. Sale of Jointly Held Property**

- **Sale Proceeds and Payment Distribution**:
- **Dividing Sale Proceeds**: If the property is jointly owned, the sale proceeds are typically divided according to the ownership shares. For a 50-50 joint ownership, the sale proceeds are split equally, so you and your wife would each receive 50% of the sale amount.
- **Cheque Payments**: The buyer can issue separate cheques or drafts for each owner, or a single cheque/draft that is jointly payable to both of you. The cheques can be deposited into your joint bank account or individual accounts as agreed upon. However, having separate cheques for each owner simplifies the division of proceeds and compliance with tax regulations.

- **TDS (Tax Deducted at Source)**:
- **Applicability of TDS**: For property transactions where the sale consideration exceeds Rs. 50 Lakhs, the buyer is required to deduct 1% of the sale consideration as TDS.
- **TDS Payment**: The TDS amount should be deducted in proportion to the ownership shares. If you and your wife jointly own the property equally, the TDS amount should be divided equally and deposited in your respective PAN accounts.

### **2. Buying a New Property**

- **Reinvestment and Capital Gains Tax Exemption (Section 54)**:
- **Joint Purchase**: To avail of the exemption under Section 54, you do not necessarily need to purchase the new property in joint names. You and your wife can purchase the new property in either your name or jointly, as long as the new property is purchased within the stipulated time frame (within 2 years from the date of sale or within 1 year before the sale).
- **Exemption Claim**: The exemption under Section 54 is available to individuals who have reinvested the capital gains from the sale of a residential property into another residential property. Both you and your wife can claim exemption proportionately according to your share of the capital gain.

- **If Purchase is Not Completed Before Filing Deadline**:
- **Capital Gains Account Scheme**: If you are unable to purchase the new property before the due date for filing your income tax return, you can deposit the capital gains into a Capital Gains Account Scheme (CGAS). This scheme allows you to defer the tax liability until the new property is purchased.
- **Division of Funds**: The capital gains amount should be deposited proportionately based on your share of the capital gain from the sale. If you and your wife are sharing the capital gain equally, then the funds should be divided equally and deposited into separate CGAS accounts if required.

### **Summary**

1. **Sale Proceeds**: Proceeds from the sale of the jointly held property should be divided based on ownership shares. You can use either joint or individual accounts to deposit cheques.

2. **TDS**: TDS should be deducted and deposited in proportion to the ownership shares. Ensure that TDS is credited to the respective PAN accounts.

3. **Reinvestment**: To claim tax exemption under Section 54, the new property can be bought in either your name or jointly. If not purchased before the return filing date, use the Capital Gains Account Scheme to defer tax liability.

4. **Documentation**: Keep all documentation related to the sale, TDS, and purchase of the new property. Ensure that the ownership details and capital gains are correctly reflected in your income tax return.

For specific guidance tailored to your situation, especially related to TDS compliance and capital gains exemption, consulting a tax advisor or financial expert is advisable.