Capital Gain Taxation: Computation & Tax Saving options
My friend’s Mother (78 years) had sold double storied house property on 03/10/19 to third party. The amount of Rs. 49 Lakh was received on execution of sale deed. Her husband had been allotted house for Rs. 28,662/ in 1981 from C.G Housing board, Durg. In the year 1991, he had constructed first floor for Rs. 1.50 Lakh. Her husband had entered her name in the property by executing sale deed jointly with CGHB for Rs. 73,712 on 29/01/1998. On 28/10/ 2008, her husband died & she becomes a single owner. The fair market value of house in the year 2001 was Rs. 3 Lakh. Please provide your useful advice as to
- The tax liability to be paid?
- For exemption, how much amount can be deposited in bank or how much amount needs to be used for purchase of Bonds? [Hare Keshav Tiwari – email@example.com]
- Since the property sold was acquired prior to 01.04.2001, the cost of acquisition/ construction can be replaced by the Fair Market Value (FMV) of the property as on 01.04.2001. For computing capital gain, FMV as on 01.04.2001 will be relevant and not actual cost of Rs. 28,662/-, Rs. 1.50 Lakh or Rs. 73,712/-
- The Cost Inflation Index (CII) for the relevant financial years 2001-02 & 2019-20 are 100 & 289 respectively. Resultantly, the indexed cost of acquisition of the property shall be Rs. 8,67,000/- (i.e., 3 Lakh * 289/100).
- The property is sold for Rs. 49 Lakh. Capital gain would be required to be computed by taking Rs. 49 Lakh if the stamp duty valuation or ready reckoner value for levy of stamp duty valuation is not exceeding Rs. 49 Lakh. If the stamp duty value of the property exceeds the actual sale price by more than 5% then the capital gain would be required by taking stamp duty value and not actual sale price. Considering Rs. 49 Lakh as sale consideration, capital gain in your case would be Rs. 40.33 Lakh (Rs. 49 Lakh – 8.67 Lakh).
Coming to the specific issue raised in your queries,
- LTCG is taxable @20.80% & so the total tax liability on sale of above property would be Rs. 8,38,864/- (i.e., Rs. 40.33 Lakh 20.80%). However, if other income of the mother is not exceeding the basic exemption limit then the amount of unused basic exemption limit can further be reduced from Rs. 40.33 Lakh and tax @ 20.80% would be payable on the remaining amount.
- The taxpayer in such case can save tax either by investing the amount of LTCG (i.e., Rs. 40.33 Lakh)
a) in the specified bonds issued by the National Highway Authority of India (NHAI) or Rural Electrical Corporation Ltd (RECL) within a period of 6 months (i.e., on or before 02.04.2020)
b) for purchase or construction of house property within a prescribed time frame.
- It must be noted that mere deposit the amount in the bank account may not result in tax saving tax. Ultimate investment has to be done in the mode mentioned in (a) or (b) above for saving tax on LTCG.
Kindly tell us the Capital Gains tax for this transaction
Facts of the Case
Property is a 2 bedroom flat, purchased by Mother on 3/8/1996 for Rs.1.53,600/-. The same is inherited by Daughter upon death of her Mother on 8/4/1999. Daughter sold this 2 bed room Flat on 5/12/2019 for Rs.15,00,000/-.
- What is the Capital Gains tax to be paid if Rs.15,00,000 is deposited in Bank without any investment?
- What is the Capital gains tax if the same amount of Rs. 15 Lakhs is invested in Constructions of House jointly with the Husband?
Kindly clarify. [Dr. K. K. H. M. Syam Sundar – firstname.lastname@example.org]
- The property inherited by the daughter was originally acquired by mother prior to 01.04.2001. As a result, cost of acquisition could be replaced by the Fair Market Value (FMV) of the property as on 01.04.2001 for working out Long Term Capital Gain (LTCG).
- By taking the FMV as on 01.04.2001, you can compute LTCG & tax thereon as per the mode discussed in above query.
- She can save tax by investing the LTCG for purchase/construction of the house property jointly with her husband. For full exemption, her share in the jointly owned property should exceed the amount of LTCG arisen from sale of present flat.