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Mother Sold House with Capital Gain - Can I Buy a House in My Name for Tax Exemption?

Ramalingam Kalirajan |8093 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Feb 04, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Aug 05, 2024Hindi

My mother sold a house with Rs. 50Lac capital-gain. Can she buy a Rs. 50Lac house to get tax exemption, but register it under my name? Or she need to register in her name and then execute a gift deed to avoid tax for both of us?

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

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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My mother stays in Odisha. She is 62 years old. She has a plot which she is selling in INR 40 Lakh. What is the capital gain tax implication in this case? How can she avoid paying the tax?

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.

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