ANCESTRAL PROPERTY PURCHASED IN 1936 SOLD NOW- INCOME TAX IMPLICATION

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ANCESTRAL PROPERTY PURCHASED IN 1936 SOLD NOW- INCOME TAX IMPLICATION

Query 1]

We had an ancestral property purchased by our previous generation in 1936 and a house was built by them. My father and his 4 brothers were joint owners of the said property. After their death, their family members became the owners of the property. Now we sold the said property in Sept. 2011 for the total consideration of Rs. 277,44, 000/- & we (Total 18 members) received the consideration according to their ownership share.  I am one of the co-owners amongst them and received Rs. 45, 77, 000/- as my share.

Now please advise me the quantum of property gain tax, I am liable to pay.  How it should be calculated?  Is it to be paid on whole amount received? What are the ways to avoid the gain tax, how much should I invest in house property so as to save total gain tax liability as I wish to keep some liquidity with me.  What are the features of investing in RBI bonds/Government bonds?

 I further wish to add that I am a Bank employee and regular tax payer and can the property gain have an impact on my yearly income?

Please also advice within how much period I have to settle all these transactions of investment / paying the tax? [Kishor V. Mujumdar – kvmujumdar.01@gmail.com]

Opinion:

  1. The property sold is very old property. In such cases, the fair market value of the property as on 01.04.1981 could be taken as cost of the property for computing capital gain & income tax. You may obtain the registered valuer’s certificate about the valuation of the property as on 01.04.1981.
  2. The cost of acquisition as mentioned above could be indexed to arrive at the Indexed cost of acquisition. For Indexation, you would be required to multiply the cost of acquisition by 7.85. [Cost Inflation Index for F.Y. 2011-12 is “785” & for FY 1981-82 is “100”.
  3. Computing LTCG:

    From the sale consideration of Rs. 277,40,000/-, the cost of acquisition as mentioned above would be deducted. The resultant amount would be taxable Long Term Capital Gain. Your share in the property appears to be 16.50% and that share of LTCG would be added to your income. [However, if the value adopted by the Stamp duty authorities is higher than Rs. 277, 40, 000/-, then LTCG would be required to be calculated by taking such higher value.]

  4. Taxability of LTCG:

    Long Term Capital Gain is taxable at a concessional rate of 20% u/s 112 of the Income Tax Act-1961. It appears that you are a regular assessee and have other income above the basic exemption limit as well. As a result, you are not entitled for any other deduction except as mentioned below.

  5. Exemption from LTCG:

    In respect of Long Term Capital Gain arising from sale of House property, exemption can be claimed U/s 54EC or u/s 54, as under:

    a) U/s 54EC:

    To save LTCG tax u/s 54EC, one has to invest the amount of Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets in the specified bonds issued by REC/NHAI.Investment in RBI Bonds will not enable you to claim an exemption u/s 54EC. There is a maximum ceiling of Rs. 50 Lacs in a financial year for investment in 54EC Bonds. The interest from the bond is taxable as regular income only.

    b) U/s 54:

    Exemption u/s 54 is available if the assessee invests amount of LTCG for purchase of another residential house property within a prescribed time i.e., One year before or two years after the date of transfer; or, in the alternative, the assessee constructs a residential house within a period of three years from the date of the transfer of the original house.

Query 2]

I wanted to know whether section 43D is mandatory for the Nationalized banks. If so, RBI says interest on NPA need not be credited to profit and loss unless it is actually received where section 43D says that interest on NPA should be offered to tax at the time of credit or receipt which ever is earlier. As per guidelines of RBI, no bank credits such interest unless it is received. In such case, section 43D will be of no relevance Please guide. [priyamvada.shekdar@mahabank.co.in]

Opinion:

Section 43D is applicable to all the Schedule bank. It is mandatory for Nationalized banks. Section 43D provides for chargeability of interest income of a public financial institution or a scheduled bank, or a state financial corporation or a state industrial investment corporation or a public company in relation to specified categories of bad or doubtful debts. It is provided that the same shall be chargeable to tax in the year of credit of such interest to profit and loss account or in the year of receipt thereof, whichever is earlier. It may be noted that the interpretation of the word “credit” in section 43D is “credit to the profit & Loss A/c” and not credit to any other account. We are of the view that Section 43D as well as RBI guidelines are parallel and not contradictory with each other.


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