How do I claim tax relief on proceeds from the sale of land?
I plan to sell a piece of land in the name of 3 brothers and use the proceeds from the sale for the construction of a dwelling house. The house to be built will be in the name of 2 brothers. How can I benefit from tax advantages by using the proceeds of the sale in the construction of a dwelling house? Is there a way for the third sibling to get tax relief if his share is also invested in the ownership of the house?
— Chavali Sarveswarasarma
The sale of land is the sale of a capital asset and the profit in this case will be taxed as a long-term capital gain after the indexation of the cost. The Income Tax Act allows taxpayers to claim certain capital gains exemptions. Exemption is available under Section 54F if the taxpayer purchases or constructs a dwelling house in India within two/three years after the sale of any long-term fixed assets or purchases one year before the date of transfer.
We understand that in this case you are planning to sell land in the name of 3 brothers and use all proceeds from the sale to build a dwelling house on the land in the name of 2 brothers. Normally, to claim the u/s 54F income tax exemption, the new built house property must be jointly owned by each co-owner and it may be required that the plot or any floor of the built property be in the name of 3rd brother after the transaction is consummated.
Question answered by Amit Maheshwari, Tax Partner, AKM Global, a tax and advisory firm. Send your personal finance questions to [email protected] for expert answers.