Helping son to buy a house

S. C. Vasudeva 

Q. My wife and I both are government pensioners and senior citizens. We have retirement benefit amount as FDs and TDS is being deducted on these. My son is working in a private firm and is married.  I want to purchase a house in Chandigarh for my son.  Please advice on the following points:

• I can invest Rs 30 – 40 lakh from my savings in buying the house.
• If I want to invest Rs 10 – 20 lakh from my wife’s amount also, then how can it be given to my son.

(i) As a gift from mother to son. (How much amount maximum)

(ii) As a interest free loan to son (How much amount maximum)

• If I invest my part and son takes a loan from mother, can he takes a loan from a nationalised bank also?
• If invested by me and my son the registered deed can be made on two (father and son) names by taking a (interest free) loan from mother?
• There any best way from above, please advise me.  — S. Singh

A. Your queries are replied hereunder:

• A mother can give a gift to her son to the extent of any amount. There is no maximum limit provided by the Income-tax Act 1961 (The Act) with regartd to a gift to a son.
• She can also advance an interest-free loan to her son for the aforesaid purpose to the extent of any amount provided the amount so advanced is not out of borrowed funds on which she is paying interest. However, the loan will have to be repaid by the son within a reasonable period.  The transaction with regard to the gift or loan, as the case may be, should be through banking channels.
• Your son can borrow money from a bank in addition to a loan from her mother for the construction or purchase of a residential house wherein investment is made  partly by you,  partly by your son (whether from his own sources or by a gift or by a loan from the mother) and partly by a loan from a bank. 
• A sale deed in respect of purchase of land for construction of a  residential house or purchase of a residential house can be in the joint name of yourself and your son.

Simple process for selling house in joint names

Q.My query is regarding the sale of property in joint name. A residential flat was purchased in joint names by by NRI son and daughter-in-law in Gurgaon when they were Indian residents. Both of them are now working in Singapore and are in the process of selling it. They plan to repatriate the sale proceeds to Singapore.

• Should the couple receive payment by separate cheques @ 50%  from the buyer?
• The ratio of share will be stated in the Sale Agreement?
• Should the TDS @ 20% be deducted and deposited separately by the Buyer on the basis of proportionate payment made to the couple?
• The couple prefers to apply for “ lower Tax deduction certificate”, since the actual Capital Gain accruing on the transaction is much,much lower than 20%.  Will they have to apply for this certificate at their respective International Tax Wards? their PAN being from different states. This will involve quite a bit of running around. The transaction will be executed me, I hold GPA for both my son and wife. Is there no simpler one-office procedure?
• The flat was purchased with money from personal savings of the couple, mainly the husband, help from me and my wife and bank loan in joint name from SBI.  The bank loan was repaid from remittance from abroad but the couple has not maintained any separate detail of contribution by each, hence our understanding that let the transaction be now shown as 50% ownership.  — Harminder Singh

A. It has been stated in the facts given in the query that your son and his wife have not maintained details of contribution made by each one of them towards the purchase of the flat during their stay in India. The ownership of the flat can be to the extent of 50% by each of the parties to the sale deed. However, the fact that each one of them owns ½ share in the flat will have to be established for the purpose of computing the amount of capital gain arising on the sale of the flat as each one of them will have to give evidence with regard to the cost of acquisition and the source from which it was incurred.  Therefore, it would be advisable for your son and his wife to prepare details with regard to incurrance of the cost of acquisition of the flat which as stated will have to be proved to the satisfaction of the tax authorities by each of the co-owners.  Reply to your query is therefore based on the presumption that this aspect is taken care of by your son and his wife.

• It would be advisable to receive payment separately by each one of them to the extent of their share in the property.  The fact that considerartion for sale has been paid to each one of them separately can be mentioned in the sale deed.
• Tax will be deducted on the gross amount of sale consideration @20.6% in accordance with the provisions of Income-tax Act 1961 (The Act) payable to each one of the parties to the sale.  Deduction will have to be from the consideration payable to each one of them as refund will be claimed by each one of them separately.
• An application for lower deduction of tax will have to be filed on the basis of the permanent address given by each of the parties to the sale and therefore, jurisdiction would vest with their respective  tax officers. 

Can two residential houses be purchased from LTCG?

Q.I own a residential plot. I do not have any residential house but one residential          house is owned by my spouse which was constructed on a HUDA plot in 1986. My spouse is self- employed. In case this house is sold then:

• Can two residential houses be purchased from the LTCG amount from the sale of this house without inviting any tax liability?
• I own a residential plot at Mohali. Can two residential houses of some bigger sizes be purchased by adding all the LTCG amount from the sale proceeds of a residential plot amount and residential house owned by my spouse without inviting any tax liability? 
• In fact, we need two residential houses keeping in view the needs of our children. Can two residential houses be purchased by us simultaneously, one house in name of my spouse from the LTCG amount from the sale of her house and the other house in my name from the LTCG amount from the sale of my residential plot without inviting any tax liability? Would it be a better option especially for taking each house as self occupied separately? — Ramesh Malhotra

A.Your queries are replied under:

• Section 54 of the Act provides that in case of an assessee being an individual or HUF, the capital gain arises from the transfer of a long-term capital asset and the assessee has within a period of one year before or two years after the date of transfer, purchased or has within a period of three years, constructed “one residential house”, then the capital gain chargeable to tax shall not be so charged provided that the cost of the new residential house is more or equal to the amount of capital gain earned by the assessee. It would therefore be advisable to sell residential house in the first instance and buy one residential house so as to avail the exemption under Section 54 of the Act.
• The provisions of Section 54F of the Act require that in case of any profit arising on sale of a capital asset other than a residential house, the same would not be taxable provided net consideration on sale of such a a capital asset is utilised towards the purchase or construction of a house within the period specified in (a) above.  Therefore, in case you intend purchasing two residential  houses  in the name of your wife and yourself to save tax on capital arising on sale of the residential plot owned by you and the residential house owned by your wife, the investment in two houses should be made  in the following manner:
• Your wife should utilise the capital gain arising on the sale of residential house in purchasing a new residential house within one year before or two years after the date of sale of the residential house as suggested in (a) above.  The house so purchased should be registered in her name.
• You should sell the plot at Mohali and invest the amount of net consideration arising on the sale of the plot within one year before or two year after the date of  sale of plot for the purchase of residential house The above requirement at (i) & (ii) is  subject  to the fact that unutilized amount of capital gain / net consideration , as the case may be, is deposited with a bank under capital gain scheme before the due date of filing the tax return of your wife. The amount so deposited can be utilized for the purchase of a house. 
• Each one of you can purchase a house separately. However, in your case net consideration accruing on the sale of the plot will have to be invested for purchasing a residential house so as to seek exemption from the taxability of capital gain.  Your wife can invest capital gain arising on the sale of residential house so as to save the tax leviable on the long term capital gain so arising. The condition with regard to deposit of unutilized amount as explained in (ii) above will have to be complied with in this case also. 
•  It may be difficult to prove that both houses are under self occupation in case these are situated in the same city.

Which date is applicable to determine LTCG?

Q.I had purchased a property in 2015 by executing a sale deed. But the physical possession was taken in July, 2016.  Which year (2015 or 2016) would be considered for determining long-term capital gain?  Please also comment regarding indexation benefit. — Beerinder Singh

A.According to the provisions Transfer of Property Act 1882 read with the definition of the term ‘Transfer’  in the Act, transfer in your favour would be effected whichever of the two events take place earlier. In the case cited  in the query sale deed in your favour was executed in the year 2015, you would be considered as a owner from the year 2015.  Indexation benefit is available for computing the amount of capital gain on the sale of a long term capital asset i.e. a capital asset which is held for more than three years. This index is announced by the Central Government for each year so as provide relief on account of inflaton for computing the cost of acquisition.