We have a property area 50 cents, the property is in my mothers name. This property was purchased 15 years back. Initially we were told that once she sells the plot and buys a land within one year of the same value then there would be nil tax. however now she is in the process of doing a settlement by were she intends to hand over 20 cents to me and 20 cents to my father. Now if we sell the land- me or my father what will happen? Will we get capital gains tax even if we purchase land for the same amount?
In the first place, whoever has guided you that purchase of land in consideration of sale of land will save you from capital gain tax implication, is completely wrong.
You and your father would be assessed to capital gain tax even though you intend to buy another land. The capital gain tax can be avoided only when an amount equivalent to or more than the net sale consideration is invested in a residential house property.
Kindly note that for claiming exemption from Capital Gains, investment in House Property (Purchase within 2 years and Construction within 3 years) can only be claimed and not Investment in Land.
If the same is settled to you & your father, you can individually claim the exemption by investment in house property in Individual Names. If you dont intend to purchase/construct a house property, you can invest the same in Capital Gains Bonds and claim exemption. (subject to a limit of 50 Lakhs)
When your mother gifts 20 cents to your father, the income on sale of such land will be still assessed in her hands, attracting the provisions of Section 64(1)(iv) of the Income Tax Act.
When your mother gifts another 20 cents to you, assuming that you are a major son, the income thereon will be assessed in your hands only. When you sell the property, the cost of acquisition of the property by your mother will be the cost of acquisition for you also and the indexation will also be applied from the year in which she acquired the property though the property is transferred to you only now.
As there will be two assets on which capital gains will be worked out in your mother's hand as well as yours, you can consider investing in capital gains bonds u/s 54EC upto Rs 50 Lakhs each. After a lock in period of 3 years, the money will be available to you to use in the manner in which you would like to invest.
In the present case if she gifts the property then there will not be any tax liability. But if she is transferring the land to avoid tax then total capital gains will be taxed in her hands as per clubbing provisions.
In case of sale of land the cost to the previous owner i.e. mother will be taken as cost of acquisition and indexed cost of acquisition that will be reduced from the sale proceeds to arrive at the capital gains tax.
It is always better to have in her name and sell instead of transferring to you and your father.
You can get exemption from tax if you invest the capital gains only in purchase of residential property with in one year or after two years from transfer. You can also construct a house on a plot if you already own to get exemption. You need to invest the amount in capital gains account scheme with any nationalised bank till the time to invest in new property or construction.
