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If new house is in wife or kid’s name, no tax benefit’

December 13, 2018 06:39 AM


If new house is in wife or kid’s name, no tax benefit’


Income-Tax Appellate Tribunal (ITAT)’s Mumbai bench recently denied a taxpayer I-T benefits that are available when long-term capital gains arising from sale of a residential property are invested in a new house. The sole reason for the denial, in this case, was that the taxpayer bought the new house in his wife and adult daughter’s names.

In a similar case, the Delhi high court had taken a view favourable to the taxpayer. ITAT’s Mumbai bench, though, was bound by the decision of the jurisdictional Bombay high court, which had taken a contrary view and held the new property must be owned by the taxpayer or he or she must have legal title over it (see box).

“Those taxpayers who are within the jurisdiction of the Bombay high court must be careful to avoid tax litigation. If the taxpayer wishes to register a new house in the name of his or her spouse and children, it would be wiser to also add his or her own name to it. In such an instance, at least a proportionate deduction (say, one third of the cost of the new house if registered jointly with names of a spouse and a child) would be available to the taxpayer,” says Puneet Gupta, director, People Advisory Services at EY-India.

Under the I-T Act, if a taxpayer makes a profit on sale of a residential house held for at least two years, then such profit is treated as long-term capital gain (LTCG). This gain is taxable at 20% with adjustment for inflation which is referred to as indexation benefit.


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