When a property is purchased jointly but funded entirely by one spouse, the individual who financed the entire purchase can claim 100% Section 54 LTCG exemption on a new property purchased in their sole name. According to The Times of India, if clear documentation establishes that the entire investment was funded by one spouse, the next property purchased through reinvestment can be registered solely in their name. This provision allows individuals to claim tax benefits without requiring joint ownership of the replacement property.
Property owners must maintain proper documentation to establish sole financing when selling jointly owned properties. As reported by The Times of India, tax experts recommend keeping detailed records of payments made for the original purchase, as this documentation can help establish that the entire investment was funded by one spouse. When selling jointly owned property, buyers should deduct full TDS against the financing spouse's PAN alone, and both spouses should report the entire sale proceeds and resulting capital gains in their respective income tax returns.
Section 54 provides relief from long-term capital gains tax when individuals or HUFs sell residential houses and reinvest capital gains in another residential property in India. According to The Times of India, the exemption is restricted to the lower of capital gain or the amount invested in the new residential house, with a ₹10 crore ceiling for new property costs from Assessment Year 2024-25. The replacement property must be purchased within one year before or two years after selling the old property, or constructed within three years from the transfer date.
Even when properties are sold in sole names, the transaction may appear in both spouses' AIS on the income tax portal due to property sale information sourced from sub-registrars. As reported by The Times of India, spouses should provide feedback on the portal stating that the transaction relates to another PAN or family member to prevent receiving notices for failing to report income. The property sale proceeds must be reported in full by both spouses, regardless of ownership structure. In cases of jointly owned properties, the person who made the contribution in purchase consideration will be considered the owner for income tax purposes, with rent income taxable in proportion to their contribution.
