Bought Co-Owner's Share? 2 CGT Rules Apply

When you buy out a co-owner's share in a property, each portion has a different purchase date and cost. This means when you sell the whole property, two separate capital gains calculations apply — and getting it wrong can mean paying more tax than you owe.

Here's what happened: When you acquire a co-owner's share in a jointly held property, that purchased portion gets its own separate acquisition date and cost basis for capital gains tax purposes.. Under the Income Tax Act, long-term capital gains on property (held over 24 months) are taxed at 12.5% without indexation, while short-term gains are taxed at your income slab rate — up to 30%.. Stamp duty and registration fees paid during the buyout are treated as cost of acquisition for the purchased share, reducing your taxable gain on that portion when you eventually sell..

What you should do: Document the exact purchase date and total cost (including stamp duty) for the co-owner's share you bought — keep the sale deed and registration receipts permanently.. Calculate holding periods separately for each share before selling — check whether your bought-out portion has crossed the 24-month long-term threshold to confirm which tax rate applies.. Consult a chartered accountant before the sale to determine whether investing the proceeds in a new residential property under Section 54 can offset gains from both shares combined..

The Section 54 exemption for reinvesting in a new home applies to the total sale proceeds — meaning gains from both your original and bought-out share can qualify, provided you meet the timeline and cost conditions.

For readers weighing their credit and loan options, our personal loan guide and CIBIL score resources put this update in context.