Selling a flat purchased in your wife's name? Here's how to save on capital gains tax

Many homebuyers prefer to buy flats in their wives' names. This practice is more common in states like Maharashtra because of the rebate on stamp duty and registration fees offered to women. However, when selling these flats, there is always a concern about the tax implications arising from capital gains: Who will be liable to pay the tax, and are there ways to save on taxes? This article explains

What the tax rules say

When a flat is purchased in the wife's name, and the husband makes the payment, any capital gain from selling the flat is taxable in the hands of the husband due to the clubbing provisions under income tax regulations.

However, you can reduce some tax liability with the following options:

Section 54

You can reinvest the capital gains in another residential property and claim tax exemption under Section 54 of the Income Tax Act, 1961. But two important conditions need to be met for availing this benefit:

• First, the new property shall be purchased within two years of the sale or constructed within three years of the sale.

• Second, the reinvestment in a new residential property shall be made before the due date for furnishing the income tax return (ITR). For example, if you sell a flat now, the capital gains shall be reinvested by the due date for ITR filing for FY 2025-26, which is July 31, 2026.

What if you cannot buy or construct a new flat/house?

In a situation where it is not feasible to buy a new flat or construct a new house with the capital gains from the sale of the previous flat, you can explore the option of investing in Section 54EC bonds issued by NHAI, REC, etc.

You can invest up to ₹50 lakh in these bonds that have a five-year lock-in period. However, this investment must be made within six months of the sale to claim tax exemption.