My wife is selling a property for Rs 1.5 crore and wants to invest Rs 65 lakh in a flat owned by my son and me. Is this allowed?

My wife is selling one property in Bangalore for Rs 1.5 crore. She wants to invest Rs 65 lacs by purchasing a flat owned jointly by me and my son. Is it allowed?

Reply by Raj Khosla Founder and MD MyMoneyMantra.com

Yes. Your wife can invest Rs 65 lakh or the entire purchase price for the flat jointly owned by you and your son. As far as taxation is concerned, it needs to be checked how much is the profit from the proceeds of Rs 1.5 crore from the sale of property.

Your wife can claim a tax exemption on long-term capital gains (LTCG) arising from the sale if the previous property is held for a minimum of 24 months and the capital gain stands at Rs 65 lakh.

The Delhi High Court and Income Tax Appellate Tribunal (ITAT) have previously upheld that a person can claim income tax exemption on investing capital gains emerging from sale of first property in a property under spouse’s name.

Section 54 of the Income Tax Act allows exemption on capital gain tax if the taxpayer doesn’t own more than one residential real estate unit on the date of sale. The property that is being used to claim capital gain exemption should be bought a year before or a maximum of 2 years after the sale of property. In case of construction, capital gain exemption is allowed if the house is constructed under a maximum permissible time of 3 years from the sale of property.

Commercial properties, real estate assets utilised for business purposes and vacant plots don’t qualify for capital gain tax exemption.