Can I purchase a new house using the sale proceeds of my mother’s current house?

-Name withheld on request

We have assumed that your mother is the sole owner of the residential property. Please note that you cannot make a purchase using the sale proceeds of your mother’s current house to buy a house for yourself. Once your mother sells the current house, she would be subject to capital gains tax on such gains earned from the sale of her house. However, she would be subject to an exemption on capital gains tax under section 54F of the Income Tax Act, 1961, if such proceeds are invested in a new residential property within the same financial year. Therefore, your mother may consider purchasing a new residential property within the same financial year. Thereafter, your mother may consider transferring the newly purchased house in your favour by way of a gift within a span of three years of such purchase. Such gift requires a written deed which is stamped and registered. Many states in India grant an exemption on stamp duty for transfer by gift between immediate relatives.

By doing so, the title in the newly purchased property shall vest in your name and would also avoid future legal disputes with your brother after your mother’s demise – as the transfer would be complete during your mother’s lifetime itself. However, your mother may also consider bequeathing the newly purchased residential property in your favour under her Will – but note that transfer in your favour would only take effect after your mother’s demise.

Rishabh Shroff is partner, Cyril Amarchand Mangaldas. Queries and views at mintmoney@livemint.com