Tax Talk

Are equity-linked savings schemes tax-deductible under 80C in the current financial year? — Haridas K.

Your understanding is correct. Any investment made under ELSS is eligible for deduction under section 80C of the Income Tax-Act, 1961 for financial year 2012-13.

The maximum deduction allowed under this section is Rs 1 lakh.

My mother gifted me a property, which she had held under her name since 2007, in Mumbai in March. She had inherited it from my maternal grandfather in 1991, being his only child. I sold the property in May. What will my holding period be? Can I get cost indexation from 1991? Can I get benefits of long-term capital gains? Can I invest in property (a house) under Section 54? Can I invest the remaining amount into bonds under Section 54EC? Will combined exemption be allowed? — Bharat

According to the tax laws in India, where the capital asset becomes the property of the assessee under a gift/will/inheritance, the period of holding will be calculated by including the period for which the property was held by the “previous owner”.

Previous owner means the last previous owner of the capital asset who acquired the property by a mode other than gift/will/inheritance etc.

In the given situation, the period of holding shall be determined from the day your maternal grandfather acquired the property. We understand that the property was acquired before 1991, and was held for more than 36 months. Therefore, it will be regarded as a long-term capital asset. Accordingly, the benefits of long-term capital gains shall be available to you.

The cost of acquisition of the asset shall be the cost for which the previous owner acquired it as increased by the cost of improvement, if any, incurred by the previous owner and the assessee. However, you have an option to take the fair market value of the property as on April 1, 1981, as cost of acquisition in case the property was acquired by the previous owner before that date.

According to the plain reading of the Act, the cost indexation benefit shall be available to the assessee from the year she held the asset. However, reference can be drawn from various case laws to support the view that the benefit of cost indexation shall be available from the year in which such property was acquired by the previous owner.

The amount of capital gain arising on sale of the residential property, being a long-term capital asset, can be claimed as exempt to the extent the capital gains generated are invested for the purchase/construction of a residential house within the time frames specified under Section 54 of the Act.

In case you are unable to use the entire amount for the purchase or construction of a new house, then the balance may be used to avail the benefits of Section 54EC, that is, investment may be made in the specified bonds, provided it does not exceed Rs 50 lakh.

(The author is a chartered accountant.)

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