Capital Gain Tax Exemption

Dear Client,
The Capital gain arises from the transfer of a long-term Residential House is exempted under Section 54 of the Income Tax Act, 1961 if, the assessee (a) purchases a residential house within one year before or two years after the date of transfer or (b) constructs one residential house within three years after the date of transfer. In case of Sale of Jointly Owned Property, each co-owner should be liable to pay tax on the capital gains arising from the sale of the property, in proportion to the percentage of their respective investment in the property. Exemption of tax under section 54 will be available to the co-owners in the ratio in which they have contributed towards the cost of the property. Capital gains exemption will not be limited to the share of ownership. Under Section 54, if the property is held jointly and both the co-owner file the IT Return and report Capital Gains on sale of Jointly Owned property, the tax will be levied in proportion to their share in the property. There is no requirement that investment should be made in the name of the assessee only. It is held by the High Court of Karnataka in the case of International Taxation v. Mrs. Jennifer Bhide (supra) that, to attract section 54 what is material is, the investment of sale consideration in acquiring the residential premises or constructing the residential premises. Once the sale consideration is utilized for the purpose mentioned under section 54, the assessee is entitled to the benefit of the said provisions and the assessee cannot be denied the benefit of deduction under section 54 of the Act even though the assessee has purchased the property jointly with her spouse. Given the proposition of the relevant statute and averments of the High Court on the subject matter, you are likely eligible to claim exemption from capital gain tax under Section 54 of the Act. However, Income Tax is a branch of law or legislation that eventually comes under the purview of Chartered Accountants and Tax Consultants who have expertise and in-depth knowledge on the subject and may guide you properly to understand and navigate the issue in the right way. So, it is advisable to consult with those expert professionals for precise and authentic information/clarifications on the subject.