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Can Parents Share Capital Gain with Child for Down Payment on New Home?

Mihir Tanna |942 Answers |Ask -Follow

Tax Expert - Answered on Jul 31, 2024

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more

Asked by Anonymous - Jul 25, 2024Hindi

My parents who jointly own a flat have decided to sell it coming week.We are looking into reinvesting the part of capital gains from this property into another flat on my name as I would also be getting additional home loan for the same. The amount would be part of down payment for same. The remaining capital gain is also being reinvested in another flat by parents jointly. Can Parents share the capital gain with child? Will there be Capital Gain tax on the same in this new budget 2024-2025 after Index abolition?

Ans: To save tax on capital gain, your parents need to invest gain amount in another property and it can not be shared with child.

Capital gain tax will change if Budget proposal are implemented as rate of tax is reduced from 20% to 12.5% and benefit of indexation will not be available.

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Question by NAMRATA - Jun 08, 2022Hindi

My wife is going to sell our 3BHK Apartment in Mapusa, Goa and around Rs32L will accrue as capital gain. We wish to invest the indexed price amount in the pension scheme whilst the capital gain will be distributed among two daughters Akhila and Amrita. I have asked Amrita to use her share in repayment / part payment of the housing loan and the share of Akhila will be used for purchasing a flat/ residential property. Will the above plan help in saving capital gain tax? What if they deposit their share / go for investment in mutual funds? What is going to be the liability of the heirs in case the parents distribute the capital gain amount? In my opinion if a senior citizen sells his only residential property the capital gain tax should not be applied. In my case when I distribute the CG amount to my daughters and they use it to either pay back their housing loan or purchase a new residential property the benefit as per the relevant income tax act should be applied and the benefits should be given to the wards.

Ans: The capital gains tax is applicable to the individual on whose name the house stands at the time of selling. Since the property is in your spouse’s name, capital gain tax will be payable by your spouse. Any tax planning like investment in Capital Gains Bonds or in another property would need to be in your spouse’s name only.

There is no exemption for senior citizens or for single house.

To save tax on sale of the property, the capital gain must be invested in your spouse’s name either in 54 EC Bonds (max limit of 50 lakh) or in a new house, within the required periods. Otherwise, your spouse will have to pay the relevant tax, post which she can make gifts to relatives without tax incidence on the gift (relative as defined in the IT Act).

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