Can I gift the property to my wife after claiming exemption from capital gain?

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Can I gift the property to my wife after claiming exemption from capital gain?

[Query 1]

In the last issue of The Tax Talk Dated 30/10/2023, the issue of capital gain exemption on purchase of the property in the name of the family member (& not in the name of the person who has earned it) was discussed & well elaborated. In continuation to the same issue, I have a few queries. I am 77 years old, settled in Nagpur. I had LTCG on sale of property in FY 22-23. Since I am old & keeping unwell, I wanted to invest in my close family member’s name for claiming exemption under section 54 & to avoid controversy/contest of my Will. Finally, I decided against section 54 and paid most of the CG Tax. I have however kept a small part in the Capital Gain Account Scheme (CGAS) in case I decide to buy some house/Flat before Dec 24 or pay the CG Tax next year.

My queries are as under:

  1. Can I at least buy a joint name? Mine as first name and my Wife as 2ndname?
  2. Is it compulsory to buy it in the Individual name only?
  3. Suppose I buy in my single name, would Sec 54 be contested, if I Gift the property to my wife, after buying in my name? Yes, it will mean additional expenses in the form of Stamp Duty of say 5 or 7 %. But certainly less than the 24% of Capital Gain Tax!

 

Opinion:

One of the most common tools for saving tax on gain arising from transfer of Long Term Capital Assets is by investing the amount in another house property. Whether the investment has to be done in the name of the same person who is earning it or it can be done in the name of family members is an issue wherein the Courts are in conflict with one another. This was discussed in the last issue of The Tax Talk Date 30/10/2023. To avoid litigation, it has been advised that the investment should be in the name of the same person who is earning it. With above short overview for the benefit of other readers, let us discuss the queries raised by you:

  1. One can invest in the property in joint name with other family members (i.e., your wife in the present case). There is no bar for investment in joint names. However, the taxpayers must ensure the flow of the fund from the account of the same person who has earned the capital gain. At least, the amount of capital gain (if exemption is claimed under section 54) or the amount of net sale consideration (if exemption is claimed under section 54F) should be established to be out of the flow of funds of the taxpayers who have earned capital gain.
    In the case of CIT Vs. Ravinder Kumar Arora (2012) 342 ITR 348 (Del), Assessee has purchased the house property in the joint name of himself and his wife & claimed exemption U/s 54. It was held by the court that, as the wife has not contributed to purchase and whole purchase consideration was paid by the husband, it would be treated s the property purchased by assessee in his name and merely because he had included the name of his wife and the property is purchased in the joint name of his wife would not make any difference and the assessee s entitled to exemption under section 54F. This view has also been affirmed in DI(Income Tax) Vs. Jennifer Bhide (2013) 349 ITR 80 (Kar).
  2. Buying the property in the individual name is not compulsory as such.
  3. You can gift the property to your wife after purchasing it in your name. Even though there is an indirect restriction of 3 years while transferring the new assets, the same is not applicable in case of gift. You can gift the property to your wife after claiming an exemption under section 54.

[Query 2]

I have earned long term capital gain on mutual funds, gold and silver ornaments of around Rs. 32 Lakh. I have suffered short term capital loss on sale of shares of Rs. 11 Lakh till now. My interest income for the FY 2023-24 is anticipated at Rs. 12.50 Lakh. I have following tax related queries:

  1. Whether I can set off a short term capital loss of Rs. 11 Lakh against my LTCG income from sale of mutual funds and ornaments?
  2. Can I invest the amount of LTCG in 54EC Bonds for claiming exemption from tax?
  3. I am a senior citizen. Do I need to pay advance tax if the total tax liability exceeds Rs. 10,000/-?

Opinion:

  1. Long Term Capital Gain (LTCG) can be set off against Short Term Capital Loss (STCL). There is no restriction for the setoff of STCL against LTCG.
  2. Capital gain exemption under section 54EC towards investment in the specified bonds issued by REC, PFC or IRFC is available only if the capital gain is arising from transfer of land or building or both.  It is not available if the capital gain arises from transfer of shares, mutual funds, gold, or other capital assets other than land/building.
  3. Senior citizens without any business income are exempt from the advance tax payment obligation.  It appears that you don’t have any business income and so there is no liability to pay the advance tax in your case.

 

[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com Other articles & response to queries are available at www.theTAXtalk.com]

Regards,
CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
10, Laxmi Vyankatesh Apartment
Telephone Exchange Square
Central Avenue Road
Nagpur-440008.

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