Jointly Owned Property Sale and Subsequent Reinvestment

[Chethan]

I would like your advice on the capital gains tax treatment for the following transaction:

• In Nov 2025, a residential flat jointly owned by my mother and me (50:50 ownership) was sold for INR 34 lakh.

• The flat was originally purchased in November 2018 for INR 26 lakh.

• In February 2026, I purchased another residential property for INR 34 lakh solely in my name.

• The entire sale proceeds, including my mother's share, were utilized towards the purchase of the new property.

• My mother transferred her share of the sale proceeds to my bank account, from which the payments for the new property were made.

• My mother is not a regular income tax filer.

Could you please advise:

1. Can both my mother and I claim exemption under Section 54 on our respective shares of the capital gains?

2. Does the fact that the new property is registered only in my name affect my mother's eligibility for Section 54 exemption?

3. Is it necessary for my mother to file an ITR for the year of sale even if she otherwise has no taxable income?

4. Are there any supporting documents or declarations that should be maintained to substantiate the claim that my mother's share of the sale proceeds was invested in the new property?

[Eshaan Singal]

Dear Chetan,

Based on the facts provided, our views are as under:

1. Can both my mother and I claim exemption under Section 54?

Yes. Since the property was jointly owned by you and your mother in a 50:50 ratio, the capital gains would be taxable in the hands of each co-owner to the extent of their respective share. Accordingly, both of you may claim exemption under Section 54 against your respective capital gains, subject to satisfaction of the prescribed conditions.

2. Does registration of the new property solely in my name affect my mother's exemption claim?

In our view, no. The fact that the new property is registered only in your name does not alter the substance of the transaction where your mother's share of the sale proceeds has also been invested in the new residential property. Accordingly, your mother may also claim exemption under Section 54.

However, since your mother is not reflected as a registered owner in the new property, the claim may be subjected to scrutiny by the Income-tax Department. Therefore, proper documentation should be maintained to substantiate the investment.

3. Is it necessary for my mother to file an ITR?

Yes. Your mother should file her Income-tax Return for the relevant year. Since a capital gains transaction has arisen and exemption under Section 54 is being claimed, filing the return would be necessary to appropriately disclose the transaction and claim the exemption.

4. What supporting documents should be maintained?

The following documents should be preserved:

Sale deed of the original property.

Purchase deed of the new property.

Bank statements evidencing transfer of your mother's share of sale proceeds to your account.

Payment trail evidencing utilization of funds towards purchase of the new property.

A declaration from your mother confirming that her share of the sale proceeds was invested in the new property through your bank account and that she holds a beneficial interest to the extent of her contribution, notwithstanding that the property is registered solely in your name.

Maintaining the above records would strengthen the claim that your mother's share of capital gains was invested in the new residential property for the purposes of Section 54.

The above views are based solely on the facts provided and may require further examination of the underlying documents.

Regards,

Eshaan Singal

Singal Tax Advisors

9952031664

AI Summary

Section 54 exemption for jointly owned property can extend to both co-owners if sale proceeds are reinvested properly. Capital gains from the sale of a jointly owned residential flat are taxable in the hands of each co-owner according to their respective share, and each may claim Section 54 exemption on that share if the conditions are met. Registration of the new residential property in only one co-owner's name does not by itself defeat the other co-owner's exemption claim, provided the other share of the sale proceeds was actually invested in the new house. Supporting documents should be kept, and a return should be filed to disclose the transaction and claim the exemption.