Suppose you have jointly owned residential property with your sibling or with someone else, with each of you holding a 50% share. Later, you buy the co-owner’s 50% share and become the sole owner of the property. After that, you sell the entire 100% of the property.
In such a case, calculating capital gains tax is not as simple as it may seem. This is because the two 50% shares were acquired on different dates and at different prices.
Here’s what experts have to say about the tax treatment in such a scenario.
Says Vijay Raundal, Director, Teerth Realties, “Owning 50% initially and subsequently purchasing the remaining 50% does not mean the property should be treated as one single capital gain. Since the two interests were acquired at different times and at different costs, the gains are likely to be computed separately.”
For immovable property, Raundal noted that the holding period of 24 months determines whether the gain is long-term (LTCG) or short-term (STCG).
Suppose the first 50% was purchased on 1 August 2022, the remaining 50% on 1 August 2025, and the entire property was sold on 1 August 2026. The first 50% has been held for four years and will qualify as LTCG, while the second 50% will be considered as STCG.
“LTCG on sales after 23 July 2024 is taxed at 12.5% without indexation. Therefore, for each share, the acquisition cost, holding period and purchase consideration will determine the tax treatment,” he added.
Keshav Mangla, GM-Business Development, Forteasia Realty, noted, “The calculation would be simpler if the taxpayer had owned the entire property from the date of acquisition.”
The capital gain will be the sale price minus the original acquisition cost and eligible expenses. If the property was held for more than 24 months, the gain would be LTCG.
Mangla gave an example where a property was originally bought for ₹60 lakh, with the taxpayer and sibling each owning 50%. The taxpayer later bought the sibling’s 50% share for ₹50 lakh and eventually sold the entire property for ₹1.5 crore.
Hardik Shah, Director, Shyam Group Dholera SIR, explained that “Section 54 can provide relief when an individual sells a residential house and reinvests in another residential house in India. However, the exemption applies to eligible LTCG, not to STCG arising from the recently purchased 50% share.”
“The exemption is restricted to the amount of eligible capital gain or the amount used for making the investment, whichever is less,” he noted.
He also added that the new house must be held for at least three years; selling it before that can lead to the Section 54 tax benefit being withdrawn.
Disclaimer: This is meant for informational purposes only. Please consult a qualified tax expert before making any financial decisions.
Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.