What are the tax implications if I buy a new property after selling a house where my mom was a co-applicant, and I've never filed her ITR?

I bought a house in 2010 in my name, made my mom a co-applicant, and registered it on her name. Now I want to sell it. How would I be able to save tax? Will TDS be divided between me and my mother? Also, do I have to file a return for my mother to get the TDS? I have never filed one for her ever. I want to adjust the money with the new property. What will be the tax implications?

Reply by Dr. Suresh Surana, Founder, RSM India

Capital Gains Tax Implications

Assuming your mother is a co-owner in the property, the gains derived from the sale of house would be subjected to capital-gains tax on the basis of respective share of the co-ownership in the property. Since the house has been purchased in 2010, you would be able to claim the benefit of indexation on the same. Accordingly, the gains (being long term in nature) derived from sale of house would be subjected to tax @ 20% (after indexation benefit) in the hands of the both the co-owners in their ownership ratio.

Capital Gains Tax Exemption u/s 54

In order to save such capital gains tax, the seller may consider re-investing the capital gains proceeds in a new house property in India subject to the following conditions:

• The new residential property must be purchased 1 year before or within 2 years after the sale of the previous house & in case of construction, it should be completed within 3 years after the sale of the house.
• Such house purchased/constructed should be situated in India.
• The newly purchased house would be subjected to a lock in period of up to 3 years from the date of purchase. In case the same is sold, the acquisition cost of such property would be reduced by the amount of exempted gains.
• In case the investment in the new property is not made before furnishing the tax returns, exemption can still be claimed by depositing the amount of capital gains in the Capital Gains Account Scheme.
• The amount of exemption would be lower of the capital gains arising on the sale of the house or the investment in a new property.

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Applicability of TDS

Section 194-IA provides for a 1% TDS to be deducted in case of purchase of immovable property wherein the amount of sale consideration or stam-duty value (whichever is higher) of the new house is Rs. 50 lakhs or more. Accordingly, the buyer would deduct TDS u/s 194-IA on the sale consideration which could be in the proportion of the co-ownership. Credit against such TDS can be claimed by the seller by furnishing their tax returns against their taxable income. Thus, it is mandatory for sellers to furnish their tax returns in order to claim the TDS credit.

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