I am a retired manager from an MNC. I have been living in my own 2-storey villa in Coimbatore for about 20 years. I have to sell this house as I want to relocate myself near my children during old age. I am not aware of the tax liability and other regulations for capital gains. I request you to highlight the implications with liability and time-frame in case I buy another house elsewhere in India from the sale proceeds of the present villa.

J. Dasgupta

Sale of residential property will be termed a ‘Capital Asset’ and the ensuing gain/loss from the sale transaction is termed ‘Capital Gain/Loss’. Your period of holding above 24 months in case of immovable property will be treated as ‘Long Term Capital Asset’. The Capital Gains is computed in the following manner, first limb will consist of selling price less brokerage. Also, if the selling price is lesser than the guideline value, then the guideline value is to be replaced with the selling price. Kindly check with the registrar’s office or visit the TN Reginet website in order to ascertain the guideline value of the UDS. Further, you will have to ascertain the value of the building depending on the characteristics-cum-amenities of the building on the basis of PWD rate. Total of the value of the UDS as per guideline value and the PWD rate valuation of the building will have to be compared with the selling price.

Second limb will consist of purchase cost plus registration costs which is to be adjusted with inflation (indexation). This is to be done with the aid of Cost Inflation Index (CII) released by the I-T Department every assessment year. If you have incurred any cost of improvement, then the same can also be added along with the purchase cost (adjusted with CII if applicable).

The long term capital gains thus arising shall be exempt from tax if the entire long term capital gains amount is invested in another residential property under Section 54 of the Income Tax Act, 1961 if the cost of the new residential property is less than ₹10 crore. In case the long term capital gains is more than the cost of the new residential property, you will have to pay the prescribed tax post the availment of exemption. Further, you have to purchase or construct the new residential property within 2 years or 3 years respectively from the date of sale of the current residential property in order to avail this exemption.

I am planning to sell my house (which was only in my name) for about ₹75 lakh and planning to take a small flat costing about ₹55 lakh both in my name and my only one daughter’s name jointly. Could you kindly advise the capital tax procedure in this case.

K Raman

It is assumed that you are in possession and ownership of this residential property for more than 2 years, making it a Long Term Capital Asset. Long Term Capital Gains Tax will be attracted on the difference between the Sale Consideration (Fair Value of Consideration) and the Indexed Cost of Acquisition. You will be liable to pay 20% plus applicable surcharge and cess on the LTCG as tax. The long term capital gains thus arising shall be exempt from tax if the entire long term capital gains amount is invested in another residential property under Section 54 of the Income Tax Act, 1961 if the cost of the new residential property is less than ₹10 crore.

If the long term capital gains amount is more than ₹55 lakh (the cost of the new residential property) then the entire sale value becomes tax free, in case the long term capital gains are above ₹55 lakh, you will have to pay the prescribed tax post the availment of exemption.

Further, you have to purchase or construct the new residential property within 2 years or 3 years respectively from the date of sale of the current residential property in order to avail this exemption. In your case, it is to be noted that the reinvestment in new residential property is to be done in your name only to avail the exemption fully.

(The adviser is partner, GSS Associates, Chartered Accountants, Chennai)

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