Personal Finance

Computing capital gains on sale of land

T. BANUSEKAR | Updated on February 05, 2011 Published on January 29, 2011


My father purchased a plot of land measuring 4 grounds in my name about 20 years ago. At the same time he had also taken a power of attorney in his favour to deal with the land.

About 15 years ago he gifted one ground each to my three sisters. All four of us decided to sell the land. I cancelled the power of attorney given to my father. Each of us got about Rs 3.50 lakh as proceeds from the sale of the land. I am not aware of the cost of acquisition of the property.

I am a housewife and my income is far below the taxable limits. I have not obtained a PAN and I have not paid any taxes. What will be the tax implication on the land transaction? — M. Nissa

Apparently on the date of sale your sisters and you owned one ground each of the property. It also appears that your father has acquired the property in your name which was a gift by him to you. The capital gains will therefore arise in the hands of your three sisters and you.

Barring the capital gains arising on your share of the land — one ground — there will be no tax implications in respect of the transactions.

You may also note that the capital gains will be taxed at a flat 20 per cent. The tax on the capital gains will be computed after reducing the basic exemption if any, which is not utilised against your other income.

As for the cost of acquisition, the same would be available in the document of purchase through which your father first acquired the property.

You may also note that if the property was acquired by your father prior to April 1, 1981, the fair market value as on April 1, 1981 can be taken as cost of acquisition.

This is only an option to an assessee and an assessee may choose the take the actual cost instead of the fair market value as the cost of acquisition.

You may further note that your father's cost of acquisition will be taken as the cost of acquisition of the property subject of course to your option to substitute the fair market value as of April 1, 1981 as cost of acquisition. If the property was acquired by your father after April 1, 1981, the cost of acquisition would be the sum paid for acquiring the property.

I am 50 years old. I purchased a plot in 2004 for Rs 5 lakh. I took a loan from a bank in the name of my wife and constructed a residential house on the plot.

In October 2009, I sold the residential house for Rs 21 lakh and purchased another plot for Rs 5 lakh in December 2009 in the name of my wife. Can my wife and I claim a deduction u/s 80C and exemption u/s 54?

I have income from dealing in property of Rs 1 lakh and interest income of Rs 11,000. I have paid a life insurance premium of Rs 40,000 and incurred expenditure of tuition of Rs 9,000 in 2009-10.

What will be my tax implications on the sale of the property? Will it make a difference if I invest in the new property in the joint names of my wife and I and not only in the name of my wife? — Sanjay Kumar

From the query it is not clear what the dates of purchase and sale are. It is also not clear if your wife has her own sources of income out of which the loan was repaid.

You may note that to claim a deduction u/s 80 C in the year of sale of the property, in respect of principal repayment of housing loan, the property should have been held for a minimum of five years from the end of the financial year in which the property was constructed or possession taken.

Apparently in your case it appears that the house constructed has not been held for five years from the end of the financial year in which the property was constructed given that you have acquired the land only in 2004 which was not out of borrowed funds and thereafter started construction of a residential house on the said property, which you have sold in October 2009.

This being so it appears that your claim for deduction u/s 80C will not be available for 2009-10.

You may also note that any deduction claimed u/s 80C in earlier years will be treated as income of 2009-10. If the superstructure is owned by your wife the capital gain on the same at the time of sale will arise in her hands.

If however the funds for construction which was out of borrowal was repaid by you, the capital gains from the sale of the superstructure would be clubbed in your hands. In any case the capital gains from the sale of the plot will arise in your hands.

Claim of exemption u/s 54 would be available on the investment made by you on the land provided you also construct a residential house within the time stipulated in the said section.

You may also note that section 54 would require an investment in capital gain account scheme if the reinvestment is not made before the time stipulated in filing the return u/s 139(1).

In any case the reinvestment in the name of your wife will not affect your claim of exemption.

You may note that though Section 54 requires reinvestment in a house property being a residential house, the cost of land would also be included for the purpose of computing the exemption.

Mail your queries to > or by post to ‘Tax Talk’, Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002

Published on January 29, 2011

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