Advertisement
The Gulf conflict has disrupted global supply chains, pushed...
REITs have changed the way commercial real estate is owned a...
What does it take to preserve a real estate legacy while bui...
What really powers the cloud? Behind every Google search, A...
A lot of what defines a home isn’t visible at handover. I...
A recent Mumbai ITAT ruling has clarified the tax treatment of jointly owned residential property when spouses contribute different amounts towards its purchase. The tribunal held that the Section 54 exemption cannot be denied merely because a replacement property is jointly purchased. In the case before it, the wife contributed INR 1.76 crore and her husband INR 55 lakh towards a INR 2.31-crore property. The ruling indicates that LTCG relief can be considered with reference to each taxpayer’s actual financial contribution and beneficial ownership, rather than automatically assuming an equal 50:50 share.
Joint ownership of a residential property does not necessarily mean that co-owners must receive an equal share of long-term capital gains (LTCG) tax exemption, according to a recent Mumbai ITAT ruling. The decision clarified that, in certain circumstances, the tax benefit can be considered with reference to each spouse’s actual financial contribution rather than simply relying on the names appearing on the sale deed.
The case involved Tejal Kaushal Shah and her husband, who jointly purchased a residential property for around INR 2.31 crore. The wife contributed approximately INR 1.76 crore, while the husband contributed about INR 55 lakh. The tribunal considered whether the couple could claim the benefit under Section 54 even though the replacement property was purchased jointly.
The Mumbai ITAT ruled in favour of the taxpayers, holding that the Section 54 exemption could not be denied merely because the new residential property was jointly purchased. The tribunal treated Section 54 as a beneficial provision and held that it should not be interpreted rigidly or denied on hyper-technical grounds.
An important aspect of the ruling was that the exemption was linked to the spouses’ respective contributions. Instead of assuming an identical 50:50 financial interest, the tribunal considered their actual investment in the property. The tax treatment can therefore depend on the underlying financial arrangement and beneficial ownership rather than ownership names alone.
The issue is relevant to married couples who jointly register residential properties for home loans, succession planning or other financial considerations. Joint registration does not establish that both spouses contributed equally.
Tax authorities can examine the source of funds, housing loan EMIs, ownership ratio, rental income treatment and consistency in tax filings.
Bank statements, payment records, loan documents, ownership declarations and other records showing the flow of funds can help establish each spouse’s contribution and beneficial interest.
The ruling also addresses a situation where one spouse has funded the entire purchase of a property registered jointly. In such cases, tax authorities may examine whether that spouse is the true beneficial owner for income-tax purposes and whether the entire capital gain should be assessed in that person’s hands. Exemption would depend on the applicable provisions and facts.
Section 54 provides relief from long-term capital gains arising from the sale of a residential house when the prescribed conditions for investment in another residential property are met. The ruling does not mean that every jointly owned property will automatically qualify for separate exemption for both spouses.
Instead, the decision highlights the importance of establishing actual ownership, contribution and compliance with the conditions governing the exemption. For property owners planning a sale and reinvestment, maintaining a clear financial trail can be important when claiming LTCG relief.
The ITAT Mumbai decision offers guidance for co-owners by indicating that tax exemption may be assessed according to the economic contribution of each taxpayer, rather than an automatic equal split based solely on joint registration.
Advertisement
Facebook
Whatsapp
