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My wife has received the sale of property proceeds after her father’s death. My query is whether the receipt of sale proceeds attracts capital gains.
A V Rama krishna
Based on the limited facts shared, it is assumed that your wife has inherited the property from her father after her father’s death, which make her the owner of the house-property. Once the property is sold, capital gain/ loss would arise in her hands.
The said gain/ loss would be classified as Long Term, if the property is held for a period exceeding 24 months and short-term in case it is held for less than 24 months. The provisions of Section 2(42A) of the Income-tax Act, 1961 (‘the Act’) provide that where the capital asset becomes the property of the assessee by way of inheritance or under will, the period of holding by the previous owner shall be included in calculating the total period of holding. Further, as per section 55(2)(b), for the purpose of section 49(1) of the Act, where the capital asset (being house property in the instant case), becomes the property of the assessee by way of gift or will and such asset became property of the previous owner before April 1, 2001, the cost of acquisition would be the cost to the previous owner or the Fair Market Value (‘FMV’) as on April 1, 2001, at the option of the assessee, subject to a maximum of stamp duty value (if applicable) of such property as on April 1, 2001. This value will be increased by cost of inflation index as provided by CBDT every year.
As per the provisions of section 54 of the Act, you will be entitled to claim deduction in respect of Long Term Capital Gain (LTCG) invested towards purchase of one residential house property in India (where LTCG does not exceed ₹2 crore, investment is also permitted in 2 house properties for the purpose of this exemption, once in a lifetime), within 1 year before or 2 years after the sale of the original house, or towards construction of residential house within 3 years (‘specified period’) from the sale of the original house, subject to the prescribed conditions. The maximum deduction is restricted to the amount of LTCG earned from sale of house.
The writer is a Partner with BDO India LLP
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