Going to sell joint property? Know how both partners can take advantage of tax exemption

In today’s times, when property prices are skyrocketing, buying a house on your own is not everyone’s cup of tea. Therefore, most people, especially husband-wife or siblings, buy property together in ‘joint’ name. Everything is fine till the property is bought, both have equal rights. But the problem arises when it comes to selling that property.

The biggest question that comes to people’s mind is – “Will both of them get tax exemption on the capital gains made on selling the house or only one?” If you are also in the same dilemma, then let us understand it in simple language.

What do the rules say? (in simple words)

There are two very important players in the tax saving game – Section 54 and Section 54F of the Income Tax Act. To understand in simple language, the government says that if you sell your house (or any other property) and buy a ‘second residential house’ from the profit, then we will not charge you tax.

But there is a slight difference:

• Section 54: This comes in handy when you have sold a ‘house’ and bought a new house from that profit (Long Term Capital Gains).
• Section 54F: This applies if you sold something other than the house (such as gold, land or mutual funds) and used the ‘whole of the proceeds’ to buy the house.

Good news for joint owners

The good news is that if the property is in joint name, then there is the benefit of tax exemption. both owners gets to. It is not that only one person will be able to benefit from it.

Tax experts say that in the eyes of income tax, every co-owner (partner) is a ‘separate person’ i.e. individual taxpayer. This means that the profit will also be divided into two parts and the discount on that profit will also be given to both separately.

The more you share, the more you benefit

There is only one mantra for this entire mathematics- “The more you put in, the more you get.”
According to experts, if both of you partners sell the property and buy two new houses separately, or buy a bigger house together, then you will get the exemption in proportion to your ‘share’.

Understand this with an example: If your stake in the old property was 50%, then 50% of the profit on sale will be added to your account. Now if you invest your share of profit in the new property, you will get full tax exemption on your share. The same rule will apply to the other partner also.

But wait! It is important to keep these 2 conditions in mind

The government has given way to save tax and has also put up some barricades. To avail the benefits of Section 54 and 54F, you have to be careful:

1. Property Range: On the day you are investing in a new property, you should not have more than one residential house other than the new house.
2. 3 years lock-in: The new house you bought 3 year Can’t sell till. If you sell it in a hurry before 3 years, the tax exemption you got will be withdrawn and you may have to pay tax.

So next time you sell joint property, do your planning keeping these rules in mind. With the right information, you can save a large part of your hard-earned money from going to tax.