Tax Query: What is the holding period for capital gains calculation for a flat?

Sudhakar Sethuraman | Updated on: Mar 12, 2022

Mr. A and his daughter in law Mrs. B purchased jointly (50:50) a residential flat in 1990. Mr. A settled his 50 per cent share of the flat in 2010 in favour of his son Mr. B stating that after his death the share should go to Mr.B. Mr. A died in 2020. Mrs. B died in 2003 and her legal heirs are husband Mr.B, and 2 children Mr. C (now a non-resident) and Mr. D. Mr.C and Mr.D are willing to settle their share in the property in favour of their father Mr.B in full now. Mr.B after completing this settlement, plans to sell the flat and will get the complete sale proceeds in his name. Am I right in assuming that the holding period for capital gains calculation in hands of Mr. B will be the original date of acquisition ie. year 1990 and the cost of acquisition for indexation will be the cost at which the flat was originally acquired in 1990?

A. Venkat

Yes. You are right.

It is specifically provided in the income tax regulations that for the purposes of calculating capital gains on inherited / gifted properties you need to consider the period the property was held by the previous owners. In this case since the property was acquired in 1990, the period of holding (for the purposes of determining whether the property is a long-term capital asset or short-term capital asset) should be considered from that date.

With respect to cost of acquisition, since the property was acquired before April 1, 2001, the Income-tax Act provides an option to consider either the original cost or the fair market value on this date as the cost of acquisition. This cost and any subsequent improvements can be indexed while computing the long-term capital gains.

I had taken Bima Bachat LIC policy (single premium money back policy), 9 years back, by paying single premium of ₹3,49,140 for sum assured of ₹5 lakh. At the end of 3 and 6 years, I got survival benefits of ₹75,000 each, which I included in my total income of that particular financial year and paid income tax accordingly. Now on maturity of the Policy, I got the single premium amount back with additional amount of ₹44,750. Please inform me whether this additional amount of ₹44,750 can be treated as long term capital gain and file the tax return (ITR 2) accordingly and claim the tax exemption, as the total capital gain is less than ₹1 lakh.

Sreekumar

You have paid almost 70 per cent of the sum assured as a single premium in respect of your insurance policy. Income tax act provides for exemption for monies received if the annual premium is less than 10 per cent for policies that are issued on or after April 1 2012. Accordingly, you are not eligible to claim exemption of ₹44,750. There are conflicting views on whether this should be as capital gains or income from other sources. Nevertheless, the exemption of ₹1 lakh referred in your query is available only for long term capital gains arising from sale of listed securities and not for receipts pursuant to maturity of insurance policies.

The writer is Partner, Deloitte India

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Published on March 12, 2022
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