“UNTAXING THE GAIN ON SALE ON SALE OF ANCESTRAL HOUSE PROPERTY”

35

 

Query 1]

I seek your clarification for calculation of Capital Gain Amount and for that I am giving following details:

  1. As residential property was acquired by my father in claim of property left in West Pakistan before partition of Hindustan but Conveyance Deed could be executed only in 1965.  My father expired in March, 2010 and by virtue of Registered Will, I have become owner of the property. Area of the Property was 50 Sq. Mts. and situated in Old Delhi Area.
  2. Property was sold by me on 23.9.2013 for Rs. 29,99,000/- (Cost of land 29,29,695/- + cost of construction Rs.68,250/- i.e. 29,97,945 and rounded off to Rs.29.99 Lacs). 
  3. At the time of sale, prevalent Circle Rate was Rs. 58,400/- but as on 31.3.1981, there were no circle rates.  Circle Rates were notified in 2007 only.
  4. Value as on 31.3.1981 is not known to me.

Presently I have kept the above Sale Deed Amount of Rs. 29.99 Lacs in S.B. Prudent Sweep A/c of a Nationalized Bank and want to transfer this amount to Capital Gain A/c before filing of return. 

Your valuable guidance in the matter is desired as under:

  1. What will be exact Capital Gain Amount?
  2. What about Interest credited in the Account?
  3. What are the tax saving options in my case?
  4. Please elaborate upon the scheme of Capital Gain deposit account scheme?
  5. What to do with residual balance of S.B. Prudent Sweep A/c and Interest portion)? [***********@pnb.co.in]

 

Opinion:

The property sold by you on 23.09.2013 is an ancestral property originally acquired in the year 1965. The property is received by you by succession. The cost of acquisition or improvement done prior to 01.04.1981 would not be at all relevant for determining the amount of capital gain. You can adopt the fair market value (FMV) as on 01.04.1981 as cost of acquisition of the property.

The common problem arises in such cases is ascertaining the value of the property as on 01.04.1981. The circle rate or stamp duty value of 1981 is normally not available in most of the cases as the concept of levying stamp duty on the basis of circle rate or ready reckoner basis was not prevailing during that time. The rate of 1981 remains a matter of judgment & disputes. Ideally, in such case, one can refer the case to a Government approved valuer & the tax payer can rely on the valuation report in absence of anything contrary to prove otherwise.

You have sold the property for Rs. 29.99 Lacs against the prevailing circle rate of Rs. 29.20 Lacs (50 sq.mtr * Rs. 58,400/- per sq.mtr of circle rate). The capital gain would be required to be computed by considering the actual sale consideration of Rs. 29.99 Lacs itself.

With above relevant background surrounding your query, point-wise replies to your queries are as under:

  1. Cost Inflation Index (CII) for the relevant FY 1980-81 & 2012-13 are “100” & “939” respectively. In absence of the FMV of the property as on 01.04.1981, exact amount of Long Term Capital Gain (LTCG) could not be worked out. You may just multiply the FMV as on 01.04.1981 by 9.39 to arrive at the indexed cost of acquisition. The difference between indexed cost of acquisition so arrive and Rs. 29.99 Lacs would be the amount of LTCG.
  2. Interest on amount kept by you in the saving bank account would be taxable as your other regular income. Only tax benefit could be in the form of deduction under Section 80 TTA which provides for deduction of interest saving account bank deposit up to a maximum of Rs. 10,000/-.
  3. Taxability of LTCG & Exemption:
    LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961. However, the LTCG tax arising on transfer of a residential house property can be saved by claiming an exemption u/s 54 or U/s 54EC, as under: –
    i) Exemption Under Section 54:
    For claiming an exemption u/s 54, tax payer have to invest the amount of Long term Capital Gain from sale of house for purchase of another house property within a period of 2 years or construct a house within 3 years period  from the date of transfer.
    ii) Exemption Under Section 54EC:
    For claiming an exemption u/s 54EC, tax payer have to invest the amount of Long term Capital Gain in Specified bonds issued by the Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer of house. In your specific case, the period of 6 months has already expired and you don’t have option to claim the benefit of exemption u/s 54EC now.
  4. Scheme of Deposits:
    a] Although under section 54, taxpayer is allowed a time period of 2 years for purchase or 3 years for construction of the house property, but the capital gain on transfer of the original assets is taxable in the previous year in which the transfer took place. The return of income of that previous year has to be filed before the specified date. Hence, the assessee will have to take a decision for the purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable.
    To offer the benefit of exemption at the time of filing the income tax return, Income Tax Act has specified a mechanism in the form of a Deposit under the Capital Gain Deposit Accounts Scheme-1988 (CGDAS). The amount of the capital gain, which is not utilized by the assessee for purchase or constructions of the new house before the date of furnishing the return of income, should be deposited by him under the Capital Gain Accounts Scheme, before the DUE DATE of furnishing the return. After Deposits, the amount already utilized by the assessee for purchase/ constructions of the new house, along with the amount so deposited, shall be eligible for exemption under section 54 in the year in which LTCG has arisen. Subsequently, taxpayer can utilize the amount for purchase / construction, as the case may be, within a specified period of 2 or 3 years.
  5. There is no restriction or bar on utilization of the residual amount (i.e., Rs. 29.99 Lacs less LTCG) for any of the purposes and you are free to utilize the residual amount for any purposes without any barrier.

 

Query 2]

I have a PAN card applied and received prior to marriage. I have filed all my return, prior to marriage, with that PAN only. Last year, I got married and now want to get the PAN card changed. The change would be in the the middle name and surname as it would be required for bank account opening, demat account opening and various ID purposes. What is the procedure I need to follow to get the name changed in the PAN card? How can I get it done? [K.S.R- rao2319k@gmail.com]

Opinion:

You can get the data in the PAN card changed with new middle name & surname incorporated therein. For this, you have to make an application in “Request for New PAN Card or/and Changes or Correction in PAN data”. You have to attach the documents in support of your submission. The form can be downloaded from the websites of UTI Technology Services Ltd (UTITSL), National Securities Depository Ltd (NSDL), or the I-T department [www.utitsl.co.in, www.tin-nsdl.com or www.incometaxindia.gov.in]. You can tick the Name column on the left margin of the form. You have to attach color stamp-sized photographs on the form.  The form can be submitted at PAN application centers of UTITSL and NSDL, the addresses of which are available at the above mentioned website.


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