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These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.
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Can I use the sale proceeds from my own house to pay my sister her 50% share in our father’s property so that the entire property can be transferred to my name? We are the only two legal heirs. In such a case, can I claim exemption from capital gains tax on the sale of my property, since the money will be reinvested in acquiring another property?
Shubham Agrawal Senior Taxation Adviser, TaxFile.in: One sibling compensating the other and obtaining full ownership is treated as a family arrangement through a release or settlement deed. This is viewed as relinquishment of inherited rights, not a commercial purchase. For exemption under Section 54 of the Income Tax Act, the reinvestment must be in the purchase or construction of a residential property. This requires a clear, in dependent purchase transaction, registered sale deed, and transfer of title. A family settlement where you already own 50% of the inherited house and are acquiring the remaining share from your sister may not amount to purchasing a “new” property. A recent Income Tax Appellate Tribunal ruling (Kavita Manoj Damani) allowed Section 54 where the assessee sold her flat and bought another from her husband. The tribunal accepted it because it was a genuine sale, executed through a registered purchase deed, with proper money trail, stamp duty and TDS, and the property purchased was clearly a separate, new asset.
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My mother’s land was compulsorily acquired by the National Highways Authority of India (NHAI), and she was given a compensation amount. Will this amount be exempt from capital gains tax? How should we report this in the ITR? Also, do we need to upload the acquisition order?
Umesh Kumar Jethani Founder, ApkiReturn: Any compensation that is received for land compulsorily acquired under the NHAI Act is generally exempt from capital gains tax under Section 10(37) of the Income-tax Act, 1961. This exemption applies if the land was used for agricultural purposes by the assessee or his family in the two years immediately preceding its acquisition, and if the acquisition was compulsory, with compensation determined under the Land Acquisition Act or a similar law. For reporting in the income-tax return (ITR), the exempt income should be disclosed under the relevant section in the ‘exempt income’ schedule of the ITR form. While there is no requirement to upload the supporting documents at the time of filing, it is advisable to retain them for any future assessment or verification by the Income-tax Department.
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