The Hindu Business Line : Capital gains on house sale

This plot of land was, however, purchased by me in the name of my wife’s sister. I now would like to sell the land and there is likely to be a substantial capital gain.

The plot of land was purchased for Rs 8 lakh while the sale consideration is likely to be around Rs 80 lakh. The source for the purchase of the property was by way of income from sale of shares and the retirement benefits obtained by my wife on VRS.

The shares, which were sold, were owned by me. The capital gain on the sale of shares has already been reflected in my income tax return.

Will it be possible for us to account for the profit on sale of the land, which is registered in the name of my sister-in-law, in the hands of my wife and myself?

Will it be required that the property should be transferred in our name from my sister-in-law’s name before we can account for the profit in our hands?

If this were to be done, for the purpose of reckoning the property as long term, will we have to wait three more years or can it be taken as long term even now. — N.S. Gopal

The capital gains from the sale of the land, if it is sold as such, will be taxed only in the hands of your sister-in-law.

If the capital gain is to be taxed in your hands, the property will first have to be transferred to you before the sale so that the capital gains will accrue in your hands. To do so, the solution may be to have your sister-in-law gift the said property to you and your wife, and thereafter to sell the property.

On doing so, the land will be treated as a long term capital asset, even though you may have held it only for a period less than three years.

This will be so by virtue of Section 2(42A) which provides that the period of holding of the previous owner is also to be taken into account in determining whether the asset is short term or long term in a case where the asset is acquired by certain modes from a previous owner which also includes a gift.

You may also note that there will be no tax implications on the gift. But there will be implications by way of stamp duty and registration charges on the transfer of the property by way of gift.

I am employed at Bangalore and I propose to purchase a flat there jointly with my mother. The cost of the flat is Rs 30 lakh. I propose to take a loan of Rs 20 lakh from a bank repayable over 15 years and the balance Rs 10 lakh will be borne by my mother. The source of income for my mother is through the gifts presented by me and my father. I presently reside in a rented house paying a rent of Rs 10,000.

What will be the tax benefits that I can get on repayment of the loan and in respect of the interest thereon? Will it be better for me to let out the new flat while continuing to live in the same rented accommodation? — A. Kumar

The interest paid on the housing loan can be claimed as a deduction by you under Section 24 in computing the income from house property.

The claim of interest will be restricted to Rs 1.5 lakh if the property is self occupied and can be claimed without any limit if the property is let out.

The principal repayment of the housing loan will qualify for deduction under Section 80-C.

You may, however, not be able to get the exemption under Section 10(13A) in respect of the rent paid once you occupy your own house. This exemption could have been claimed by you so long as you are paying rent provided you are in receipt of HRA from your employer.

In so far as letting out the new house is concerned, the advantage or disadvantage has to be weighed in the context of the various exemptions etc that you are claiming.

It may not be possible therefore to examine this on the basis of the information provided by you.

I have taken a life insurance policy which has been in force for more than three years now.

I now propose to surrender the said policy. I have been claiming deduction under Section 80-C in respect of the insurance premium paid in the earlier years. If I were to surrender the policy now what will be the tax implications?

Will I be eligible to claim the deduction under Section 80-C in respect of the premium paid in the current year? Will the amount that I receive on such surrender be taxable in my hands? — S. Pasha

The amount that you receive on surrender of the policy will not be taxable in your hands and would be exempt under Section 10(10D) of the Income Tax Act.

You can also claim the deduction under Section 80-C in respect of the premium paid in the current year. There will be no further tax implications on the surrender of the policy.

Section 80-C(5) only provides that if a policy is terminated before premiums have been paid for two years, the aggregate amount of deductions allowed in the previous year and the years preceding shall be deemed as the income of the previous year in which such termination takes place.

In your case you have indicated that the policy has been in force for more than three years. If this were so, Section 80-C(5) would have no application and hence there will be no tax implications as a result of this provision.

(Mail your queries to taxtalk@thehindu.co.in, or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)

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