Can I buy a new home using the proceeds from the sale of my mother’s current home?

-Name withheld on request

We have assumed that your mother is the sole owner of the residential property. Please note that you cannot make purchases using the sale proceeds of your mother’s current home to buy a house for you. Once your mother sells the current home, she will be subject to capital gains tax on such gains earned from the sale of her home. However, if such income is invested in a new residential property within the same financial year, it will be subject to exemption on capital gains tax under section 54F of the Income Tax Act, 1961. Hence, your mother may consider buying a new residential property within the same financial year. Thereafter, your mother may consider transferring the newly purchased house in your favor as a gift within a period of three years from the date of such purchase. Such a gift requires a written deed to be stamped and registered. Several states in India provide exemption on stamp duty for transfer by gift between immediate relatives.

By doing this, the title to the newly purchased property will be in your name and will also avoid future legal disputes with your brother after your mother passes away – as the transfer will be completed only during your mother’s lifetime. However, your mother can also consider bequeathing the newly purchased residential property in your favor under her will – but note that the transfer in your favor will only take effect after your mother passes away.

Rishabh Shroff is partner, Cyril Amarchand Mangaldas. Questions and thoughts at mintmoney@livemint.com