Personal Finance

Your Taxes

Sanjiv Chaudhary | Updated on May 06, 2019 Published on May 06, 2019

Representative image   -  istock/Andrew_Rybalko

I am planning to sell my inherited old house for ₹2 crore (cost in 1970 was ₹4 lakh). Being a senior citizen, I want to get maximum tax benefits. Please suggest ways of doing so.

HL Srivastava

As per the provisions of the Income Tax Act, as the residential house property has been held by you for more than 24 months, the same shall qualify as a long-term capital asset. Any gains/loss arising from transfer of this property would be chargeable as long-term capital gains/loss (LTCG/LTCL).

Such LTCG/LTCL shall be required to be calculated as per the provisions laid down of the I-T Act, which provides for indexation for the cost of acquisition and improvements, if any, to be reduced from net sales consideration (after providing for any expenses directly related to sales).

Further, as the property was first held by you in 1970, as per the provisions of Section 48 of the I-T Act, the base year for the purpose of indexing cost of acquisition will be 2001.

You shall be required to consider the fair market value of the property as of April 1, 2001, for the purpose of cost indexation. Also, any improvements done on or after April 1, 2001 shall be indexed based on the cost inflation index for the year of improvement and the year of sale.

LTCG arising from the sale of a house property is taxed at 20 per cent (plus surcharge and education cess as applicable). It is also important to note that no deduction under Sections 80C to 80U of the I-T Act can be claimed from LTCG. However, you shall be eligible for the benefit of applicable tax slab rates.

The I-T Act prescribes certain exemptions in the hands of the taxpayer from such LTCG by re-investing the amount of capital gains into specified assets. We have highlighted the exemptions available in your hands:

Section 54: LTCG to be invested in purchase (one year before or within two years from the date of transfer of original asset) or construction (within three years of date of transfer of original asset) of one residential house property in India. The lock-in period for the new house is three years.

Pursuant to the 2019 Budget, effective for AY 2020-21, a taxpayer can make investment in two residential house properties in India. The option of making investment in two residential houses is available only if the amount of LTCG does not exceed ₹2 crore. Further, the benefit of making investments in two residential houses can be claimed only once in a lifetime.

If a taxpayer is unable to re-invest the capital gains in the specified investment before the due date of filing the returns under Section 139(1) of the I-T Act and if the specified time limit for the investment has not expired, he/she may deposit such unutilised capital gains in a capital gains account to claim exemption before furnishing the returns of the income, but not beyond the due date for furnishing the returns of the income.

Section 54EC: LTCG to be re-invested in the purchase of a long-term specified asset within six months from the date of transfer of the original asset. Long-term specified assets under this section means any bond, redeemable after five years and issued on or after April 1, 2018, by the National Highways Authority of India, the Rural Electrification Corporation or any other bond notified by the Centre.

The total investment made by the taxpayer in a long-term specified asset should not exceed ₹50 lakh, spread over the year in which the original asset is sold and the next financial year.

Section 54EE: LTCG to be re-invested in purchase of long-term specified assets within six months from the date of such transfer of original assets. Long-term specified assets mean unit(s) of funds notified by the Centre which are issued before April 1, 2019,

The total investment made by the taxpayer in long-term specified assets should not exceed ₹50 lakh in the year in which the original asset is sold and the next financial year. The lock-in period for the new asset is three years.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

Published on May 06, 2019

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