On Sale of Property - Residential

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  1. Raja Krsnan

    Raja Krsnan New Member

    We are three brothers ( all aged between 44 to 49 yrs) all married living with our mother, 77 yrs. The said property (residential) was in the name of mother, and due to certain reasons transferred to my youngest brother by way of a Gift Deed in November 2012. Subsequently in March 2013 a Memorandum of Understanding (MoU) was created and registered for the division of property sale proceeds, if it is sold in future. It has four parts, comprising of 25% to me, two younger brothers and mother.

    Now we are close to the sale of the property, I would like to know the following:
    1. Can the sale proceeds be divided equally as per the percentage mentioned in MoU & deposited to the accounts of respective claimants named in the MoU? or is it only going to be deposited to the holder of the property?
    2. If sale proceeds going to be deposited in the name of the current holder, what are the tax implications involved for him as his share is only 25% of the proceeds? Is it necessary that the current holder has to receive the full amount and pay the tax? or Is it permissible to receive it in accordance to the MoU?
    3. Since the deal may take place in March 2016 or later, is it going to be a long term capital gains or short term capital gains? Can we claim indexation benefits?
    4. Is it necessary the sale proceeds while being shared in accordance to the percentage in the MoU, the other three will have to pay tax again in the year of receipt?
    5. Is it necessary to invest the sale proceeds in residential property or Capital Gains bonds to avail tax benefits? What if we are going to invest the proceeds into a business and not a residential property. What are the tax implications?

    Kindly advise me on the above mentioned areas.

    Raja Krsnan
    Last edited: Feb 25, 2016
  2. Mr. Raja,
    what I could understand from your query is that the property was in the name of your mother then by a gift deed it was transferred to your younger brother and againd by way of an MoU it was agreed among you that if the property is sold in future, the sale proceeds is to be divided equally among you and your brother including your mother.
    1. Now, I am not the right person to tell you the validity & and legality of transferred asset or MoU but all I can say to you is, whosoever is the real owner of the property if it is sold the capital gain tax has to be paid to the Govt.
    2. If it is proved that you all are the owner of the property you all have to pay your share of taxes.
    3. if the time gap between the date of aquisition and date of sale exceeds 36 months it will be considered as a long term capital assets and hence long term capital gain tax.
    4. whosoever, sells the property (capital asset), he/she has to pay the tax, if it is payable.
    5. if one wants to save tax, one needs to invest as per the tax laws. if you want to invest in your business, you will have to pay the capital gain tax.
    it is always better to consult the professional.
  3. Raja Krsnan

    Raja Krsnan New Member


    Thank you for the reply.

    of the queries raised by me in the post above, the below mentioned one I am not clear. Hence I would like to elaborate what I actually is looking for a bit in detail.

    Query No.1 - I will elaborate it a little more. Since we are in negotiations with a buyer who has shown interest in the said property, we asked him how he will make the payments. We also told him about the MoU we have entered into between ourselves. He said he can either make a single payment to the holder of the property or he can give four different cheques, provided we share the PAN, Adhar, Bank account and any other details legally required of all the 4 members.

    My query is how does Income Tax department treat this - will they accept the splitting of the payment into four instead of one. all of us are willing to share the details and comply with the law. If my brother receives the full amount, he is going to be taxed for it accordingly. that is a fact. But when he splits the amount as per the MoU, will the other 3 be taxed again as it has been taxed already at the hands of my brother? Is there a remedy to this? doesn't it make sense to split it four ways at the beginning itself by providing necessary documents needed by IT Department?
    Last edited: Feb 26, 2016
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