Personal Finance

Your Taxes

Sudhakar Sethuraman | Updated on November 03, 2019 Published on November 03, 2019

I have a house (more than 80 years old) in my native place, inherited from my grandfather/father. I am planning to sell the same now. Please advise me as to how to arrive/calculate long-term capital gain, keeping in mind the following:

As the house is nearly 80 years old, I don’t know the cost and I don’t have any documents that support the value (including land and building).

My father spent a few lakhs some years back for renovation work for which I don’t have any bills. I have also done some renovation work two years back.

Can I deduct the above expenses (with no bills/proof) from the sale value?

Venkateshwaran PS

As per the tax regulations, gains arising from the sale of a capital asset is taxable under the head “capital gains”. Further, the gains will have to be sub-classified as long term or short term, depending on the period of holding of the asset. This, in turn, would also determine the rate of taxation of the gain, deductions that can be claimed and associated conditions.

Since your situation relates to inheritance of ancestral property, you will have to consider the date of acquisition by the previous owner (in this case, your grandfather, assuming the property was purchased by him and passed on to your father and then to you) for determining the period of holding and, in effect, the nature of gain in your hands. Since the property is more than 80 years old, this will be a long-term asset held by you and the resultant gain (on sale) will qualify as long term capital gain (LTCG).

The costs of acquisition of this property will be higher of the cost price to the previous owner or fair market value (FMV) as on April 1, 2001. If you do not have the cost details, you can consider fair market value of such property as on April 1, 2001 as the cost of acquisition.

Additionally, while computing LTCG, you can also give effect to the time value of money and index the cost of acquisition using the prescribed cost inflation indices (CII). As you are planning to sell the property in the current FY, namely, FY 2019-20, the indexed cost of acquisition has to be computed as follows: Costs of acquisition * CII for 2019-20/CII for 2001-02

Further, any improvement to the property after April 1, 2001 could be deducted from the sale consideration after factoring in the indexation benefit. One point to be borne in mind is that if your case is selected for scrutiny by the tax authorities, you should be in a position to furnish the documentation/explanations in support of the claims made in the return. In the absence of proofs/documents, the claim made in the tax return could be disallowed, resulting in additional tax and penal consequences.

I am a regular reader of BusinessLine. Thank you for providing tax guidance to the readers. In May 2019, I redeemed four SIPs, of which three are equity funds and one an ELSS. I started all four in 2015 and plan to continue with them till the redemption date. I would like to know the tax payable, while filing the income-tax return in the coming assessment year. At the same time, I would like to know the tax implications of systematic withdrawal plan (SWP) of any ELSS fund after completion of three years from the date of issue of SIP. Is there any tax implication if there is a switch over of one fund to the other?

Somnath Nag

Gains arising from the sale of an equity-oriented fund held for more than 12 months would be regarded as long-term capital gain (LTCG). Similarly, redemption of equity-linked savings scheme (ELSS) would be subject to LTCG tax, as ELSS will have lock-in period of three years from the investment date. Also, gains from systematic withdrawal plan (SWP) of ELSS after three years from the date of issue is taxable as LTCG.

LTCG exceeding ₹1 lakh arising on transfer of units of equity-oriented funds and redemption of ELSS is taxable at a concessional rate of 10 per cent. Further, surcharge (if any) and health and education cess at 4 per cent shall apply. Cost-indexation benefits are not applicable. You may note that switching from one equity fund to another is regarded as transfer and, accordingly, any gain/loss on account of switching of funds shall be chargeable to tax.

The writer is Partner, Deloitte India. Send your queries to [email protected]

Published on November 03, 2019
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