YOUR QUERIES: Invest LTCG on sale of property in new house to get tax exemption

October 05, 2021 1:00 AM

Tax exemption is available if LTCG on sale of property is re-invested in another residential property. One has to purchase it within two years from the date of transfer.

tax exemptionTDS is a form of advance tax paid to the government, the credit of which can be taken while discharging the final tax liability (computed at applicable slab rates/ special rates)

By Chirag Nangia

My father passed away last year and our house is in my mother’s name. She gets a family pension. What are the tax implications if we sell the house?
—Arun Arora

If the property was cumulatively held by your parents for a period more than 24 months, the capital gains on sale of property shall be classified as long-term (LTCG), else, the same shall be short-Term in nature (STCG). For computing LTCG, the indexed cost of acquisition, indexed cost of improvement and expenses (incurred wholly and exclusively in connection with the transfer) shall have to be deducted from the sale consideration of property. Notably,
since the property has been acquired by way of inheritance or succession, the ‘cost of acquisition’ shall be deemed to be the cost at which the previous owner (your father) acquired it. LTCG so computed shall be taxed at the rate of 20%.

Further, tax exemption is available if LTCG on sale of property is re-invested in another residential property. One has to purchase it within two years from the date of transfer. In case of construction, the timeline is three years. Further, the section does not restrict re-investment in the name of the seller only. This position has been affirmed in various courts and tribunals as well. Then, your mother can claim benefits under Section 54. You may seek professional help for correct computation and reporting of income.

l I have salary income of less than `50 lakh and income from taxable RBI bonds, LTCG from FMPs & dividend income from mutual fund, other interest income from PPF/FD. My wife has salary income less than `10 lakh plus income from taxable RBI bonds and dividend income. Which ITR should we use?
—M K Jain

Both of you shall have to disclose the particulars of income in ITR 2. Income from specified units of a mutual fund is subject to 10% TDS, as per Section 194K. Notably, TDS is a form of advance tax paid to the government, the credit of which can be taken while discharging the final tax liability (computed at applicable slab rates/ special rates). While filing the return of income, you shall have to self-assess your tax final liability by applying applicable slab rates/ special rates (as the case may be) to your total income and deduct the amount of TDS therefrom.

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

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