Your Queries – Income Tax: Capital gain on sale of inherited property is liable to income tax

By Chirag Nangia

After the death of my father, I am selling his flat. Is the sale proceeds exempted from income tax? I have no other source of income.
—Mahesh Samarth
While no income tax liability arises on inheriting property upon death of father, the subsequent sale is taxable as ‘capital gains’ in the hands of the recipient. Therefore, you have to offer the capital gains on sale of inherited house property, irrespective of whether you have any other income. An immovable property such as a flat is classified as a long-term capital asset if it is held for a period exceeding 24 months. Else, the same is treated as short-term. In computing the period of holding, the time period for which your father held the property would be included.

Further, gains arising on transfer of immovable property held as long-term capital assets are subject to taxation at the rate of 20%. Short-term capital gains attract normal rate of tax basis the total taxable income of the taxpayer. In order to compute capital gains, the indexed cost of acquisition, indexed cost of improvement and expenses (incurred wholly and exclusively in connection with the transfer) have to be deducted from the sale consideration.

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These capital gains are exempt in your hands if you reinvest it in another residential house property within one year before or two years from the date of transfer. In case of construction of a new residential house, the time limit is three years.

What should be the holding period for listed debt mutual funds to ensure that the profits are treated as long term capital gains?
—Dinesh Goyal
For debt mutual funds, the capital gains shall be classified as long-term only if the same are held for a period more than 36 months, else the same shall be treated as short-term.

I am having income from business/profession of Rs 12.50 lakh. The short-term capital gain is Rs 2.65 lakh, long-term capital loss is Rs 3.50 lakh, dividend income Rs 0.50 lakh, interest on term deposit senior citizen scheme Rs 1.32 lakh. Please advise which ITR form is to be filled?
—GSVS Prabhakara Rao
Individuals deriving income from business/ profession, capital gains and other sources are required to furnish the return of income in ITR 3.

The writer is director, Nangia Andersen India. Send your queries to fepersonalfinance@expressindia.com