Tax Talk

I want to sell an inherited plot and buy a flat jointly with my son (partly financed by him). I want to know whether I will get long term capital gain tax benefit in this transaction. - N. Govekar

Assuming that the inherited plot was held for more than three years by the previous owner, it will be treated as a long term capital asset. According to section 54F of the Income-tax Act 1961, (the Act), you can avail an exemption from Long Term Capital Gain (LTCG) tax by investing the sale proceeds of the original asset (i.e. inherited plot) in purchase of a new residential house property within one year prior to the sale date or two years from the sale date of the original asset.

Alternatively, you can construct a new house within three years from the date of sale of the inherited plot. The Act is silent whether exemption will be allowed if you have a share in the new house property purchased/constructed. However, eference can be drawn from various case laws to support the view that the benefit of deduction u/s 54F can be taken even in a case of acquisition of partial ownership in the new residential house property. Thus, relying on such judgments you may avail tax benefit u/s 54F, subject to fulfilment of other conditions mentioned u/s 54F.

This is with reference to the tax rebate of Rs 2,000/- u/s 87A introduced in the recent budget to the Resident Individuals. Does this mean that the minimum threshold is increased? -Ramana

Finance Act, 2013 has inserted section 87A to introduce a rebate up to Rs 2,000 from the tax payable. This rebate is available from FY 2013-14 onwards, from the income tax payable by individual resident taxpayer having total income less than Rs 5 lakh. The rebate shall be equal to the amount of income tax payable or Rs 2,000, whichever is less. Hence, the minimum threshold limit of the taxable income remains unchanged, however a rebate from tax payable is given under this new section.

(The author is a practising chartered accountant)

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