Sold a property funded entirely by you but jointly owned with your wife? You may claim 100% Section 54 LTCG exemption on a new home in your name; what your wife should report in her ITR

Part 54 supplies reduction from long-term capital positive aspects tax when a person or HUF sells a residential home and reinvests the capital acquire in one other residential home.

To procure a property collectively within the identify of your self and your spouse, however the complete cash spent on the acquisition got here from you. Now you’re planning to promote it and are questioning whether or not the brand new property that you just plan to buy for long-term capital positive aspects (LTCG) exemption, must also be collectively owned by you and your partner or in case your sole possession additionally works.It’s an attention-grabbing query, and one which has revenue tax implications, so you should watch out.A very powerful level to notice on this matter is the proof of the financing for the primary property. When you have a transparent path and satisfactory documentation that may set up the cash to purchase the primary property was totally yours, then the brand new property needn’t be bought in joint names.

Joint property sale & LTCG exemption

Shubham Agrawal, Senior Taxation Adviser, TaxFile.in lately instructed ET that if a person alone financed the complete joint property buy, then he can be thought-about the 100% useful proprietor. In that case, the subsequent property bought via reinvestment might be registered solely in his identify.She additionally listed some vital factors that the property proprietor ought to be aware of when promoting and claiming LTCG exemption advantages:

What’s Part 54 to avoid wasting tax on long-term positive aspects from promoting a home?

Part 54 supplies reduction from long-term capital positive aspects tax when a person or HUF sells a residential home and reinvests the capital acquire in one other residential home in India. This exemption has been made obtainable in order that in case you are shifting from one dwelling to a different, then you shouldn’t face a tax burden solely as a result of the previous property was offered to finance the brand new one.Let’s check out some vital factors in regards to the exemption and its limits:1. Who can declare the exemptionThis Part 54 profit is offered solely to a person or HUF. Additionally, the property that’s offered have to be a long-term capital asset and a residential home property.Additionally, be aware that for immovable property, the holding interval to qualify for the Part 54 exemption as long-term is 24 months. Due to this fact, if a home is offered earlier than finishing 24 months of possession, Part 54 exemption advantages can’t be claimed.For instance: For those who purchased a home in April 2024 and offered it in April 2025, because the property was held for lower than 24 months, the acquire is short-term and Part 54 doesn’t apply.2. The substitute home should meet a time restrictThe taxpayer should buy one other residential home inside one 12 months earlier than or two years after promoting the previous property. Alternatively, a brand new home might be constructed inside three years from the date of switch. The substitute property have to be in India.Importantly, a home bought earlier than the sale also can qualify, offered it was purchased inside the one-year window. For instance, a home bought in December 2024 can qualify towards a residential property offered in April 2025.3. How a lot exemption are you able to truly getThe exemption is restricted to the decrease of the capital acquire or the quantity invested within the new residential home. So, if the capital acquire is Rs 1 lakh however solely Rs 80,000 is invested within the new property, the exemption can be Rs 80,000 and Rs 20,000 will stay taxable. If Rs 1.2 lakh is invested towards a Rs 1 lakh capital acquire, the complete Rs 1 lakh acquire might be exempt.There may be additionally a particular provision permitting funding in two residential homes, however solely the place the long-term capital acquire doesn’t exceed Rs 2 crore. This selection might be exercised solely as soon as by the taxpayer.4. There’s a Rs 10 crore ceilingThe exemption will not be limitless. From Evaluation Yr 2024-25, the place the price of the brand new residential property is greater than Rs 10 crore, the surplus is ignored whereas calculating the Part 54 exemption.So, for instance if the capital acquire is Rs 13 crore and you purchase a brand new home for Rs 14 crore, solely Rs 10 crore can qualify for the LTCG exemption. The remaining Rs 3 crore of capital acquire stays taxable.5. What if in case you have not purchased the brand new home by the ITR deadlineIf the capital acquire has not been used to buy or assemble the brand new home by the point the income-tax return is filed, the unutilised quantity might be deposited into the Capital Positive factors Deposit Account Scheme. This permits the taxpayer to say the exemption whereas getting further time to buy or assemble the substitute property. The deposited cash should subsequently be used for that goal.There’s a essential deadline right here. The required deposit have to be made by the due date for submitting the return. A late deposit doesn’t qualify for the exemption.6. The tax profit might be misplaced laterPart 54 comes with a lock-in situation. If the brand new home is offered inside three years of buy or completion, the sooner exemption is successfully withdrawn. The quantity of capital acquire that was exempt is deducted from the price of the brand new home when calculating its capital acquire.Equally, cash positioned within the Capital Positive factors Account should in the end be used to purchase or assemble the home. If it stays unused after the permitted interval, the exemption is withdrawn and the unutilised quantity turns into taxable as long-term capital positive aspects.