BackLTCG deduction available if the gains are used to buy properties
Deduction is available under Section 54 of the Income Tax Act for reinvestment in a new property. Judicial precedents may challenge deduction if the buyer is not a co-owner.
PremiumMy mother is selling her house. Meanwhile, I have booked an apartment due to be delivered by 2026 and have already paid 30% of the overall sale price. My mother has agreed to let me use the sale proceeds from the house she owns towards payment for my apartment. This apartment’s sale deed has my wife and I registered as buyers. Will it be possible to show this apartment purchase in my mother’s IT return against the capital gains from the house she owns? Are there any actions I need to take to ensure this happens?
—Name withheld on request
It is assumed that the house (“original property") being sold off by your mother (being a sole owner) is a residential house and has been held by her for over 24 months (before the proposed sale date), thereby qualifying as a Long-Term Capital Asset. The gains from the sale of such property shall qualify as Long-Term Capital Gains (LTCG) and shall be chargeable to tax in your mother’s hands.
As per the provisions of Section 54 of the Income Tax Act 1961 (“the Act"), a deduction is available to the assessee in respect of LTCG from sale of residential house-property invested towards purchase of one residential house property (“new property") in India (in specified cases investment in two properties is permitted), subject to fulfilment of specified timelines and conditions. The maximum deduction is restricted to the amount of LTCG earned from sale of original property.
To avail this deduction, the assessee is required to purchase or construct the new property. In case your mother is also an owner or co-owner of the new property, she should be eligible to claim deduction of the proportionate amount of LTCG reinvested in new property, subject to specified conditions being satisfied. Considering the conflicting judicial precedents, where the property is neither owned or co-owned by your mother, the deduction may be challenged.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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