Sold home jointly owned with wife? Here's how you can claim 100% LTCG benefit

The Income Tax Department has clarified the procedure for claiming 100% long-term capital gains (LTCG) exemption on the sale of a jointly owned residential property. Finance Minister Nirmala Sitharaman’s 2023 Union Budget had introduced a provision allowing individuals to claim full LTCG exemption even when the property is held jointly with a spouse, provided the sale proceeds are reinvested in another house within the specified timeframe.

To qualify for the exemption under Section 54 of the Income Tax Act, the new property must be purchased either one year before the sale or within two years after the sale. Alternatively, construction of the new house must be completed within three years from the date of sale. The exemption applies to long-term capital gains arising from the sale of a residential property that has been held for more than two years.

According to tax experts, the benefit is available regardless of whether the property is owned solely or jointly. In joint ownership cases, each co-owner can individually claim the exemption on their respective share of the capital gains, provided they meet the reinvestment conditions. This rule is particularly beneficial for married couples who jointly own a property and wish to reinvest their gains to minimize tax liability.

The Central Board of Direct Taxes (CBDT) has issued guidelines to ensure smooth implementation. Taxpayers must maintain proper documentation, including the sale deed, purchase deed of the new property, and proof of reinvestment. The exemption cannot be claimed if the new property is sold within three years of purchase, which could lead to tax implications on the original exemption.

Experts advise individuals to consult a chartered accountant before proceeding with the reinvestment to ensure compliance with all conditions. Failure to meet the reinvestment timeline or incorrect documentation could result in the exemption being denied during an income tax scrutiny. The provision aims to encourage investment in the real estate sector while offering tax relief to homeowners.

The 100% LTCG exemption benefit is a significant relief for joint property owners looking to optimize their tax planning. By adhering to the reinvestment rules, taxpayers can legally reduce their tax burden while supporting the government’s push for affordable housing and investment.

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