Individuals these days generally make sure they have the name of their property under joint names. This offers many benefits. Sometimes those who opt for a joint home loans are forced to make the property on joint names.
This works out well for a working couple who wish to make the property on joint names. But, do you know how to account for capital gains when a joint property has been sold. The capital gains would have to be borne by the holders in equal proportion.
Now let's give an example on how this works. Say, a husband and wife bought a property for Rs 25 lakhs in 2004 and sold the same in 2015 for Rs 75 lakhs. They would have to pay a capital gains tax on the profit made. However, they would not have to pay capital gains on the Rs 50 lakhs made, because they would have to work out the capital gains tax after indexation.
How would the capital gains tax work out with indexation?
First, you can check the cost inflation index table
Use the following formula: Actual Cost Of Purchase x Cost inflation Index On year of Sale/Cost Inflation Index On Year Of Purchase.
Rs 25 lakhs x 1081/497 = Rs 54.37.
So, capital gains with indexation would be Rs 75 lakhs - Rs 54.37 = Rs 20.63.
You then split the same equally between the husband and the wife. This is how capital gains by a joint applicant would be paid on sale of a property.
However, you need not pay a tax if your have invested in another property elsewhere. You can also invest the sale proceeds in capital gains tax saving bonds. Read more on how you could save capital gains from sale of property