Sale of share in father’s property

S. C. Vasudeva   

Q.We are two brothers having equal share in a house in Chandigarh after the death of our parents. Now my brother is selling his share to me. My queries are: 

• What will be the tax liability for both of us and what can be done to save tax?
• Can my brother invest in a plot to save tax?
• Should I get the purchased share registered by paying stamp duty or only get family transfer of share from estate office?
• What about the earlier half share that was already in my name? —Narender Kumar

A.It is presumed that the residential house inherited by you had been held by your father and after his death by both the brothers for more than three years.  Replies to your queries are based on the said presumption.

The sale of half share of the house property by your brother to you will not involve any tax liability as far as you are concerned.  Your brother will be liable to pay tax on the capital gain arising on the sale of half share of the house property to you.

• Your brother will not be able to save tax on the capital gain so arising in case the amount of capital gain is utilised for the purchase of a plot. He can save tax in case he utilises the amount of capital gain for purchase or construction of a residential house within the specified period. The specified period for purchase of a residential house is one year before or two years after the date of sale of the residential house and for construction it is three years after the date of sale of the residential house. In case your brother is not able to utilise the amount of capital gain for purchase or construction of a residential house within the period specified as above before the due date of filing of income-tax return for the year in which the capital gain arose, the amount so unutilised is required to be deposited with a bank under capital gain secheme account before the said date. The amount so deposited is to be utilised for the purchase or construction of a residential house.
• Your brother can, as an alternative, save tax on the amount of capital gain by utilising the amount of capital gain for purchase of tax- saving bonds within six months of the date of sale of his share of residential house to you. Such bonds can be purchased for maximum amount of Rs 50 lakh and have a lock-in period of three years. Your brother can choose both the options i.e. he can utilise the amount of capital gain for purchase or construction of a residential house as well as purchase tax-saving bonds within the period specified as aforesaid.
• The transfer of your brother’s share to you would require execution of a sale deed which will have to be registered and stamp duty due thereon will have to be paid.
• It seems the mutation of the house property in the name of both of you had not been done at the time of inheritance of the said residential house. It would be essential that before the transfer of your brother’s share to you the mutation of the property in the name of both the brothers is effected.

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Implications of owning 3 houses

Q.I own one residential house and one plot.  I sold the plot and purchased two flats with that money. Can I possess three houses or what can be the other alternative? — Ramesh Agarwal

A.You can definitely own three houses without any problem.  However, you will not be entitled to claim exemption under Section 54F of the Act in respect of cost of flats as you already have one residential house and you could have purchased one more residential flat so as to avail such an exemption. Proviso to Section 54F of the Act provides that the benefit in such a case would be allowed provided the asessee does not own more than one residential house other than the new residential house. You have purchased two additional flats by utilising the sale proceeds of the plot as you already own a residential house.  You would, therefore, be covered by the proviso and would not be able to claim the benefit. The other alternative can be that instead of purchasing two flats, you should purchase one flat and utilise the balance of amount of capital gain for purchasing tax-saving bonds within six months of the date of sale of plot. These bonds can be purchased for a sum of Rs 50 lakh.  These bonds have a lock-in period of three years.

Cost involved in gifting property to sons

Q.My mother wants to gift ancestral property which was initially in my grandfather’s name and then in my father’s. She became the owner after the demise of my father in 1994. The said property is located in New Delhi. We are two brothers and a sister. The property is to be given to both sons as our sister is relinquishing her share willingly.

What is the procedure to carry out this transfer and what will be the cost involved in this in terms of Stamp Duty or  registration after the gift deed and transfer  to the legal heirs?   — Harpreet Singh

A.The property having been inherited by your mother and she having become the owner  thereof since 1994,  there should not be any requirement for your sister to relinquish her share in the property as your mother being the owner  has a right to deal with the property in the manner she decides. The gift deed executed by your mother will have to be registered. Stamp duty @ 6% plus registration fee @1%  shall be payable. You can save expenditure on the registration of gift deed in case the property is inherited by both of you by virtue of a Will executed by your mother in favour of both of you.  Such a Will will take effect after the demise of your mother.

Can father and son claim rebate on home loan?

Q.I want to avail a joint home loan along with my father for purchasing a plot, but the letter of intent of the plot has been issued in the name of my father. If we avail a joint home loan from the bank then can we both (father & son) claim deductions under Section 24 and under Section 80C of the Income Tax Act, for interest and principal repayment proportionately? How could we avail joint tax benefits under Section 24 and 80C on the facts described above? —Vishal Agnihotri

A.Your queries are replied hereunder:

• Deduction under Section 24 of the Income Tax Act 1961 (The Act) for the amount of interest paid/payable for purchase or construction of a residential house is allowable against income from a house property.  No deduction is permissible in case the amount of loan is utilised for purchase of a plot of land.
• Deduction under Section 80C of the Act is allowable if the amount has been utilised  for the purpose of purchase or construction of a residential house property, income from which is chargeable to tax under the head “Income from house property” (or which would, if it has not been used for the assessee’s own residence, have been chargeable to tax under that head).

In view of the above, none of you can avail the deductions permissible under the aforesaid Section in case the amount of loan is utilised for the purchase of a plot.

Legal validity of Will

Q. I want to know if any of Class-I legal heirs gets the land mutated as  per the registered Will without getting it probated from the court and with a mere photo copy, without obtaining attested copy from the Sub Registrar, then does it have any legal standing or the mutation so obtained  can be challenged in the court?  Is it mandatory for a registered Will to pass the test of probate and law is same in all the states? — M.S. Yadav

A. A probate is a court procedure by which a Will is proved to be valid or invalid,  though in current usage this term has been expanded to generally include all matters and proceedings pertaining to administration of an estate.  

A mutation of property normally does not confer a legal title to the property.  The person in whose name the property has been mutated is recognised by municipal authorities for recovery of taxes and other charges leviable on the property.  

Therefore, in case a property has been mutated by municipal authorities in the name of Class-I legal heirs as per the Will, photocopy of which would have been filed along with the application for the mutation of property, a person who has been excluded from the inheritance of the property can normally contest the validity of the Will executed by the deceased even though the property has been mutated in the name of a legal heir by the authorities.