How is LTCG tabulated on sale of home?

My father purchased a property for ₹1 crore in July 2008 and gifted it to me in May 2014 after paying the required stamp charges. The property was offered for ₹14 crore in November 2021. I wish to understand how the long run capital features (LTCG) tax will apply on this case?  Also, how will tax be computed If both 70% or 90% of capital features is invested in new property? Can I put money into a property which might be handed over to me in March 2025?

—Name withheld on request

As the property has been held for greater than two years (interval of holding calculated from the date of buy of property by the proprietor who truly acquired the property), any capital features made on this might be thought of as LTCG.   If the precise sale consideration is decrease than the stamp responsibility worth by greater than 10%, the stamp responsibility worth is taken into account because the deemed sale consideration. 

 You are eligible for the advantage of adjusting the Cost of Acquisition (‘CoA’) based mostly on the relevant Cost Inflation Index (‘CII’) for FY 2008-09. Further, stamp responsibility payment paid on the time of gifting shall additionally kind a part of CoA, and CII for FY 2014-15 will apply. 

LTCG revenue is taxed at a flat price of 20% plus relevant surcharge (restricted to fifteen % on LTCG) and training cess. In case your taxable revenue (aside from LTCG) is beneath ₹2.5 lakh (tax exemption restrict for people as much as 60 years of age), advantage of the unexhausted exemption restrict shall be allowed towards the LTCG and the steadiness achieve might be taxed at 20%.

 Under part 54, LTCG from the sale of a residential home is allowed for deduction if the features are both invested to buy one other residential home (‘new house’) inside one 12 months earlier than or two years or to assemble a brand new home inside three years of the switch of the home. The deduction is out there to the extent of LTCG invested. If the quantity of LTCG is larger than the price of the brand new home bought or constructed, the distinction between the quantity of LTCG and value of recent home (i.e. 30% and 10%, respectively in your case) shall be taxable within the 12 months of sale as LTCG. 

In case, you’re unable to buy/assemble the brand new home until the date of submitting the return of revenue for FY 2021-22 (due date is 31 July), the LTCG not utilized (in complete or half) may be deposited in Capital Gains Deposit Account Scheme with a specified financial institution and exemption claimed below part 54 of the Act. The new home may be bought or constructed by withdrawing the quantity from the account inside the specified time restrict of two or 3 years, as relevant. 

We perceive that you just plan to put money into an under-construction property, whose possession is predicted in March 2025. Some courts have held that completion of development of the home or occupation thereof just isn’t a stipulated requirement and so long as the LTCG has been invested in development of a residential home inside three years, the exemption must be accessible as much as that extent. 

Another faculty of thought is that the property ought to have been absolutely constructed and prepared to be used, inside the stipulated interval of three years. As the regulation stipulates that funding is required to be made in a residential property, within the case of under-construction property, the residential property comes into existence solely on the date of completion of development/ possession, which must be accomplished in tjree years from switch.

In view of the above, a place that funding in below development property (even when development not accomplished), could also be extremely litigious particularly the place on the time of funding itself the assessee is conscious that the development might take past 3 years.

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

Subscribe to Mint Newsletters

* Enter a sound e mail

* Thank you for subscribing to our publication.

First article