How married couples can save capital gains tax on a house sale under Section 54F

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Capital gains tax applies to you, not your spouse, as you’re the beneficial owner.
Exemption under Section 54 is allowed for only one residential house investment
You can invest up to Rs 50 lakhs in capital-gain bonds for further exemption

Wondering how married couples can save on capital gains from multiple properties bought jointly in the name of a husband and a wife? Today’s Ask Wallet Wise explains the tax benefits provided under Section 54 of the Income Tax Act, 1961.Ask Wallet-Wise initiative offers expert advice on matters related to personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try to get a top financial expert to address.

I have a residential house in Gurgaon in joint name with my wife, which was purchased in April 2012 for Rs 1.52 crores. We plan to sell this property for an amount of Rs 5.52 crores in the next financial year.

Besides, we jointly own two under-construction flats in Pune, bought in May 2024 for Rs 1.15 crore each under our names. We expect the possession to be finalised in the next financial year. My wife is a housemaker and does not have any source of income. What are the options for me to save on capital gains tax? Can we both invest in Capital Gains Bonds of Rs 50 lakhs each?

Expert’s Advice: Assuming that the full investment in the existing house was made by you, therefore, the whole capital gains will become taxable in your hands even if it was registered jointly with your spouse. Since your wife is not the beneficial owner of the house, she does not have any tax liability in respect of the sale of this house and thus, she cannot claim any exemption.

Since the house was bought in 2012 and has been held for more than two years, the profits of Rs 4 crores on its sale shall be taxed as long-term capital gain, and you can avail of various income tax avenues for claiming exemption.

One of the exemptions available is under Section 54 for an individual and HUF to claim exemption, arising from long-term capital gains on sale or transfer of a residential house, provided that the proceeds are invested for buying another residential house within the prescribed time period.

Also, the residential house has to be acquired within two years from the date of sale of the old house. The tax exemption can still be claimed even if the house is purchased within one year before the date of sale of the residential house.

This exemption is also available if you build or register an under-construction house. Irrespective of when the construction of the house is started, or the residential house is booked, the construction needs to be completed, or the possession should be obtained within three years from the date of sale of the old residential house.

Make sure to sell your house before the completion of the under-construction house to avoid tax complications. This is because getting possession of an under-construction house cannot be equated with purchasing a residential house.

This exemption is available only for investments made in one residential house in India. Since you have bought two residential houses, you can claim this exemption only with respect to investment in one house unless both the flats are adjacent to each other and are proposed to be used as a single residential unit.

Remember, since your aggregate long-term capital gains exceed Rs 2 crores, you are not eligible to avail the once-in-a-lifetime opportunity to invest the long-term capital gains from the sale of one residential house in two residence house to claim the exemption.

Another option for you to save long-term capital gains is to invest up to Rs 50 lakhs in capital-gain bonds of specified financial institutions within one year, wherein you can avail of an exemption under Section 54EC.

So, as the exemption under Section 54 is not available for both houses, you will be able to claim long-term capital gains exemption for a maximum of Rs 1.65 crores, and the taxes have to be paid on the balance of long-term capital gains.

Since you are a resident and the flat was acquired before July 23, 2023, you have the option to pay tax on the lowest of plain long-term capital gains at 12.50 percent or at 20 percent on indexed long-term capital gains.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

Courtsey To : Moneycontrol