Can my 90-year-old mother-in-law use capital gains to buy a flat in Mumbai?

Ans: If the plot was acquired for a period less than 24 months it is called a short-term capital asset whereas if the period is more than 24 months it is called as long-term capital asset.

Short term capital asset attracts STCG. You can calculate STCG by deducting the cost of acquisition, expenses related to sale, cost of improvements if any from the sale price. STCG is added to your income and thus taxed at your income tax slab rate.

Whereas for a long-term capital asset would attract LTCG. You can calculate LTCG by deducting the indexed cost of acquisition, indexed cost of improvement and any expenses connected to sale. The tax rate applicable in this case is 20%.

Tax Savings for LTCG:

1. By purchasing a new house within 2 years or construct a new house within 3 years.

2. In case you don't wish to buy or construct a new house, you can invest your money on long term capital bonds like Rural Electrification Bonds or the NHAI bonds for a minimum of 5 years. However, you have to buy these bonds within 6 months from the sale of your plot and since the capital gain is below 50 lakhs, this is the most viable option for your mom.

3. You also have the option to set off your capital gain against any previous capital loss from the sale of any previous capital asset.

Ans: For your mother to claim capital gains tax exemption under Section 54 of the Income Tax Act, the property must meet certain conditions:

Key Conditions for Section 54 Exemption
Ownership: The new property must be purchased in your mother’s name.
Timeframe: Purchase should be within 1 year before or 2 years after the sale of the original property.
Type of Property: Must be a residential property in India.
Can She Register the Property in Your Name?
No, she cannot claim the tax exemption if the property is directly registered in your name.
The exemption is strictly allowed when the new property is purchased in the name of the seller (your mother).
Alternative Option: Gift Deed After Purchase
Your mother can purchase the property in her name and claim the exemption.
After the purchase, she can execute a gift deed to transfer the property to you.
A gift from mother to child is tax-free under the Income Tax Act.
However, you may incur stamp duty charges on the gift deed, depending on your state’s rules.
Why This Approach Works
The Income Tax Department recognizes the exemption because the initial purchase was in your mother’s name.
The gift deed is treated separately and doesn’t affect her eligibility for the exemption.
Final Suggestion
Buy the property in your mother’s name to claim the exemption.
Afterward, transfer it to you through a gift deed to avoid capital gains tax for both of you.
Consult a tax expert for proper documentation and compliance.
This ensures tax savings and a smooth transfer of ownership.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: To claim capital gain tax exemption, owner is required to invest gain amount in new property. So if your mother buy property in your name, she will be liable to pay capital gain tax.