It is very common that people use to purchase the house property (like flat, building etc) in joint name to ensure proper funding for the same and sometime for smooth succession thereof (e.g Generally husband and wife use to purchase property in joint name so that in case of death of any of the person the other spouse can have peaceful possession of such property).

Apart from the above, two or more person can become joint owner of a house property in one of the following ways:

1. Inheritance (through will)

2. Inheritance (without a will)

3. Gift (through a Gift deed).

In case of sale of such jointly owned house property, the capital gain arises to all the joint owners in the proportion of their share in the property.

For Example: Mr X and Mr Y are the joint owners of a house property with their share of 60% and 40%. The house property was acquired on 10.05.2002 for Rs 10,00,000. The said property is sold on 15.01.2019 for Rs 30,00,000 and expenses on transfer is Rs 50,000.

Find the capital gain for Mr X and Mr Y.

FY Cost Inflation Index
2002-03 105
2018-19 280

Solution:

Particulars Total Mr X Mr Y
Sale Consideration 3,000,000 1,800,000 1,200,000
Less: Expenses on Transfer 50,000 30,000 20,000
Net Consideration 2,950,000 1,770,000 1,180,000
Less: Indexed Cost of acquisition (10,00,000*280/105) 2,666,667 1,600,000 1,066,667
Long Term Capital Gain 283,333 170,000 113,333

How to calculate ownership ratio for House property:

It is very important to define ownership ratio of each co-owner to determine their tax liability. The ownership ratio can be determined as below:

1. In case of jointly purchased property- In case of jointly purchased property ownership ratio will be determined by the sum contributed by each co-owner to purchase the property. Mere mention of name of one of the joint person in the registry deed does not make him owner for the computation of Income under Income Tax Act.

2. If one of the co-owner has not contributed anything for purchase of property (mostly happens in case joint name is with house wife) then he/she will not be treated as co-owner.

3. In case of Inheritance (through a will)- In case two or more person become owner of the property by way of inheritance through will, then share of each co-owner will be determined based on the share mentioned in the will.

4. In case of Inheritance (without will)- In case two or more person become owner of the property by way of inheritance without a will (i.e interstate succession), then share of each co-owner will be determined based on law of succession applicable to such person which is based on their religion. However, in case some of the legal heirs have relinquished their right in the property by mutual consent, the ownership ratio shall stand modified to that extent.

5. Gift (through a Gift deed)- In case two or more person become owner of the property by way of Gift through a Gift deed, then share of each co-owner will be determined based on the share mentioned in the Gift deed.

In case the ownership ratio can’t be determined by any of the above methods then provisions of Sec 26 of Income Tax Act 1961 shall apply.

Sec 26 provides that if the share of each co-owner is definite and ascertainable then each co-owner will be liable to tax based on their share in the property. However where the share of each co-owner is not definite, then Income from House property will be determined and charged to tax in capacity of an AOP (Association of Person).

 How to save tax on capital gain arisen on sale of House property:

The Long term capital gain arising on sale of house property is chargeable to tax @ 20%. However one can claim exemption u/s 54, 54EC or 54F in case of house property.

Particulars Sec. 54 Sec. 54EC Sec. 54F
Who is entitled Individual/ HUF Any person Individual/ HUF
Use or Holding period Long-Term Long-Term Long-Term. Should not own more than 1 house on the date of transfer
Asset Transferred Residential house Land or building or both. (w.e.f FY 18-19) Any Asset other than Residential House
Amount to be invested Capital gain Capital gain (Investment in the year of transfer and next financial year = maximum Rs 50 Lacs) Net Consideration
New Asset One residential house in India Specified bonds redeemable after 5 years (w.e.f FY 18-19) (Previously 3 years) in NHAI or RECL One residential house in India
Exemption Capital gain or amount invested whichever is lower Capital gain or amount invested whichever is lower (Amount Invested / Net Consideration) X Capital gain
Prescribed period for investment Within 1 year before or 2 years after the date of transfer in case of purchase or
within 3 years after the date of transfer in case of new construction
Within 6 Months from the date of transfer Within 1 year before or 2 years after the date of transfer in case of purchase or
within 3 years after the date of transfer in case of new construction
Sale of new asset STCG in case new asset is sold within 3 years from the date of purchase / construction. LTCG in case new asset is sold within 3 years from the date of investment LTCG in case new asset is sold within 3 years from the date of purchase / construction.
Scheme of Deposit Available in case of unutilised amount Not Available Available in case of unutilised amount

For Example: Mr X and Mr Y are the joint owners of a residential house property with their share of 60% and 40%. The house property was acquired on 10.05.2002 for Rs 40,00,000. The said property is sold on 15.01.2019 for Rs 2,40,00,000 and expenses on transfer is Rs 50,000.

Find the capital gain for Mr X and Mr Y.

Also calculate the exemption available in following cases:

1. Mr X and Y both invested Rs 60,00,000 each in NHAI bonds on 20.01.2019.

2. Mr X and Y both purchased flat of Rs 60,00,000 each on 20.01.2019.

FY Cost Inflation Index
2002-03 105
2018-19 280

Solution:

Particulars Total Mr X Mr Y
Sale Consideration 24,000,000 14,400,000 9,600,000
Less: Expenses on Transfer 50,000 30,000 20,000
Net Consideration 23,950,000 14,370,000 9,580,000
Less: Indexed Cost of acquisition (40,00,000*280/105) 10,666,667 6,400,000 4,266,667
Long Term Capital Gain 13,283,333 7,970,000 5,313,333

Case 1) Mr X and Y both invested Rs 60,00,000 each in NHAI bonds on 20.01.2019

Particulars Mr X Mr Y
Long Term Capital Gain 7,970,000 5,313,333
Less: Exemption u/s 54EC (Max Rs 50 Lacs) 5,000,000 5,000,000
Taxable capital gain 2,970,000 313,333

Case 2) Mr X and Y both purchased residential flat of Rs 60,00,000 each on 20.01.2019

Particulars Mr X Mr Y
Long Term Capital Gain 7,970,000 5,313,333
Less: Exemption u/s 54 6,000,000 5,313,333
Taxable capital gain 1,970,000

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2 Comments

  1. v s goomber says:

    purchased residential property in june 2004 for Rs 600000. Transfer charges Rs 30000. Renovation and one room built up charges Rs 200000. Sold this property on 07.11.2018 for Rs 750000.
    Again purchased residential property on 28.11.2018 for Rs 9500000. Transfer charges Rs925000. Renovation amount 100000. If the property is sold on 01.12.2020, How LTCG will be calculated as i donot want to invest proceeds in new property.

  2. vasant prabhu says:

    I sold my property on 4.4.2019 for 1.35 crores (transfer chargers 25000/- extra) which was bought on 11.2.2002 for 10.20 lakhs jointly with my wife. And invested Rs.76 lakhs for buying another property on 2.05.2019 (other charges 6.46 lakhs extra). How much I should invest now in bonds under sec 54EC in each partners name. Please clarify

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