Each co-owner is liable to pay tax on LTCG

My father and I collectively personal a residential flat in Mumbai. The flat was bought by my father in 2009, whereas I used to be nonetheless learning and I had no supply of revenue. We now want to promote the flat and need to know the tax implications on every of us.

I even have a few different questions.

1. Can I present the whole proceeds of the sale as my revenue underneath long-term capital beneficial properties (LTCG?) If not, what’s the most quantity I can present as my revenue?

2. My father had already invested ₹25 lakh in 54EC bonds from the sale of one other property in 2018, which can mature in 2023. Can he make investments any taxable revenue arising from the sale of this property in 54EC bonds once more this 12 months?

—Name withheld on request

The foundation of apportionment of capital beneficial properties within the arms of the co-owners, the place the share will not be outlined, has not been particularly prescribed within the Income Tax Act, 1961 (the Act). The similar might due to this fact be thought-about foundation normal interpretation of legislation and numerous judicial precedents on this regard. Also, whereas there are conflicting judicial precedents on this regard contemplating the varied property preparations, steering might be drawn therefrom.

Generally, every co-owner needs to be liable to pay tax on the capital beneficial properties arising from the sale of the property, in proportion to the proportion of their respective funding within the property, except there are circumstances to justify in any other case (e.g., reward and so on.). This would must be substantiated with authorized paperwork (buy deed) in addition to respective supply of funding and the proportionate price.

In the moment case, as the whole funding was carried out by your father and presuming there isn’t any particular act of the property being gifted to you by your father, the whole capital acquire ought to accordingly be supplied to tax in his India tax return.

Further, because the residential flat was held for greater than 24 months, the asset shall be thought-about as a long-term capital asset and the beneficial properties could be taxable as long-term capital beneficial properties (LTCG).

LTCG on sale of residential flat might be computed because the distinction between web sale proceeds (sale proceeds much less brokerage bills) and the listed price of acquisition.

The listed price of acquisition of the asset in your case could be calculated as price of acquisition / price inflation index (CII) of 12 months of acquisition (CII for FY09 is 137 and for FY10 is 148)* CII of 12 months of sale. (CII prescribed for FY22 is 317). The tax is payable at 20% (plus relevant surcharge and cess) on the ensuing LTCG. The mentioned LTCG can be totally taxed in your father’s arms.

In the case of sale of a residential flat, an exemption might be sought in any of the next methods, topic to the prescribed situations and timelines:

• Under Section 54 of the Act, by investing the LTCG in a brand new residential home located in India.

• Under Section 54EC of the Act, by investing the LTCG in specified bonds.

• Under Section 54GB of the Act, by investing the online consideration in fairness shares of an eligible startup.

Further, for the aim of claiming exemption underneath Section 54EC of the Act, an investments as much as ₹50 lakh might be made per monetary 12 months.

Parizad Sirwalla is associate and head, international mobility providers, tax, KPMG in India.

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