Income tax rule on sale of house property received as alimony by a divorcee — explained

• June 13, 2023
• CA Chandan Agarwal's Office

ITR filing: A divorcee can claim exemption under Section 54 on sale of the flat received as alimony if you invest the indexed capital gains for purchase or construction of another residential house property within specified period

What is tax implication on sale of residential house property received as alimony for a divorcee? Can she save tax by reinvesting the money?

Answer: The whole sale consideration received on sale of property received as alimony on divorce is not treated as taxable income. What is taxable is the capital gains made on sale of such property. For the purpose of computing the capital gains in the cases where the seller himself or herself has not paid for it like in case of gifts, inheritances, the amount paid by the previous owner or owners is to be taken as the cost.

Whether such asset is to be treated as short term or long term depends on the combined holding period starting from the date it was bought for a consideration. In case the combined holding period is 24 months or more the profits are taxed as long term capital gains. It may be noted that in such cases though the cost and holding period of the previous owner is to be taken into consideration, you are not allowed to take the benefit of indexation from the date of purchase by the original buyer if one goes strictly by the language used in the law and is available from the date on which the donee gets to own such asset. However, a few of high courts have held that the benefit of indexation is available from the date it was acquired for consideration.

You can claim income tax exemption under Section 54 on sale of the flat received as alimony if you invest the indexed capital gains for purchase or construction of another residential house property within specified period. Additionally and alternatively, you can invest the capital gains in capital gains bonds of specified financial institutions within three years from date of sale of the residential property up to ₹50 lakhs in a year.

Source: https://www.livemint.com/money/personal-finance/income-tax-rule-on-sale-of-house-property-received-as-alimony-by-a-divorcee-explained-11686563211795.html