LTCG: PAYING TAX MAY BE BETTER THAN SAVING TAX

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LTCG

Query 1]

I am a Retired defense officer (64 years) & would request your valuable advice. I bought a flat for about Rs. 4 Lacs and took the possession in the year 1994. I put my son’s name as joint owner when the sale deed was registered. He was a minor then & was aged about 18 years or so.

I sold the same on 11th November 2010 and the full payment was made to me in my
name. After indexing, the net long term capital gain comes to about Rs. 15 Lacs.

My queries are:

  1. Can I show 25% of the sale price in my son’s name & Balance 75% will remain in my name? (My son is 34 years old now).

  2. Is it better to pay the capital gains off and freely invest the remaining amount or better to put the Capital Gains amount into the Capital gain bonds of NHAI/REC etc? Which option is better? and am an IT payee in the highest tax bracket.
  3. I don’t want to invest into another property – it is only postponing the CG tax liability and I do not want to manage properties any more.

I would be grateful for your views. also would appreciate two lines from you
earliest as the 6 months for putting into CG bonds finishes on 10th May 2011.

[mgr1806@rediffmail.com]

Opinion:

  1. In the absence of anything contrary to prove otherwise (like specific mention in the sale deed about the ownership ratio, payment/recording in the books of accounts/ Balance-sheet etc), the ownership in case of jointly owned property is presumed in equal ratio. It appears from your query that the entire investment for purchase of the flat is done by you & your son name is included in the sale deed for the name sake only. If it is so, the entire LTCG on sale of flat will be taxable in your hands only.
  2. If you have a better opportunity to invest the funds elsewhere & able to earn the higher income, you may think of paying the tax rather than investing the amount in the tax saving bonds of REC/NHAI u/s 54EC. The biggest gain an assessee have while investing in the 54EC Bonds is the upfront tax saving @ 20% of the LTCG. In ideal situations, if an assessee in the higher tax slab is able to earn the income above 18.05% p.a., he may think of paying the tax as against saving the tax by investing in the bonds U/s 54EC. You may refer to one of the Tax Column written by CA. Payal Rathi in the Hitavada- Money dated 01.03.2011 titled “LTCG: PAYING TAX MAY BE BETTER THAN SAVING TAX” which may be relevant & helpful in deciding whether to pay tax or save tax. The same can be viewed at http://ehitavada.com or at http://nareshjakhotia.blogspot.com

Query 2]
My doubts are towards taxable amount against property gain. I am house wife. Due to sad demise of my father & mother, during 2010 the ancestor property was transferred to my name. The property is near about 100 years old and now the mutation contains 3 names i.e. my self along with my cousins. My name was included in mutation in the Month of March 2011.

We have sold 1/3rd portion of the property in the month of April 2011. As per Nagar Parshad Office, the current valuation of the 1/3rd portion of property is Rs.  34,00,000/-   and the Sale deed was prepared for the same amount. Instead of receiving 1/3rd share I have received Rs 10, 00,000/- only from the broker.  

The ancestral property, as referred above, consists of total area of 1800 sq meter. On this area, there are 15 houses and 25 shops leased to tenants & one Bungalow. Out of this area, about 600 sq meter consisting of 10 houses with tenants were disposed off for Rs. 34,00,000/-. You are therefore requested to kindly confirm the amount which should be treated as property gain and how much tax I have to pay? Sir, if I invest up to Rs. 3,50,000/- for procurement of agriculture land, can the Tax liability will be reduced? [manishajoshi70@hotmail.com]

Opinion: –

  1. From the sale consideration received, the expenses incurred in connection with transfer need to be reduced to arrive at the figure of Net Sale Consideration. Your share in the sale consideration of Rs. 34 Lacs appears to be of Rs. 11,33,333/- whereas you have received Rs. 10 Lacs only out of the sale proceeds. If Rs.1.33 Lacs is the brokerage or deal charges, then the same would be deductible as expenses in connection with the transfer and Rs.10 Lacs would be taken as the Net Sale Consideration.
  2. The difference between the
    a) Net sale consideration &
    b) the fair market value of the property as on 01.04.1981 & indexed cost of improvement
Would be treated as “Long term capital gain” & would be taxable @ 20%.
  1. In the absence of all the relevant information like fair market value as on 01.04.1981, cost/year of improvement etc the amount of long term capital gain could not be worked out.
  2. Investment in the agricultural land will not help you in saving any LTCG Tax arising on sale of the ancestral property.
  3. You can save the Long Term Capital Gain tax as under:
a) U/s 54EC:
To save LTCG tax u/s 54EC, you are required 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.
b) U/s 54F:
For exemption u/s 54F, subject to various other terms / stipulations, you have to invest the amount of net sale consideration for purchase of a residential house property within a prescribed period.

LTCG

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