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My father purchased a plot in 2016 for Rs 50,65,000. He passed away five years ago and I inherited the property as his sole heir. In 2023, I started constructing a house on this land, which was completed in July 2024. I am currently residing in this house. If I sell it now, how will the capital gains be taxed?
Shubham Agrawal Senior taxation adviser, TaxFile.in: Judicial precedents, including Smt. Seema Shah v. ITO (2022), establish that land and the building constructed on it are separate capital assets. Applying this, it becomes clear that their holding periods and costs must be determined independently. In your case, the land was purchased by your father in 2016 for Rs 50,65,000 and inherited by you five years ago. As per the Income Tax Act, your father’s holding period is included in yours, meaning the land is deemed held since 2016. As this period exceeds 24 months, the land is a long-term capital asset, and its cost of acquisition will be your father’s purchase price with indexation benefit up to the year of sale. The house constructed by you in July 2024 is to be treated differently. Since it has been held for less than 24 months, it is treated as a short-term capital asset. The construction cost will be deductible from the sale proceeds, but no indexation is allowed, and any resulting gain will be taxed at normal slab rates. On the sale, the total consideration must be fairly apportioned between land and building and calculations may be done accordingly.
I have been a non-resident for the past 50 years. I purchased a property in India in 1979 while I was a non-resident. Now I wish to sell it. How will the capital gains tax be calculated? Can I still opt for indexation to compute the capital gains?
Amit Maheshwari, Tax Planner, AKM Global: Since the property was purchased in 1979, the cost of acquisition of the flat will be the purchase price or the Fair Market Value (FMV) as on 1 April 2001, whichever is higher, but not exceeding the Stamp Duty Value (SDV) as on 1 April 2001. Please note that with effect from 23 July 2024, the benefit of indexation for long-term capital assets has been withdrawn. Subsequently, an amendment was introduced allowing resident individuals and Hindu Undivided Families (HUFs) the option to choose the lower of 20% tax with indexation or 12.5% tax without indexation for properties acquired before 23 July 2024. In your case, being a non-resident, this option will not be available, and the long-term capital gain (LTCG) will be computed as the difference between the net sale consideration (i.e. sale price less any transfer expense incurred) and the cost of acquisition. Besides that, if any cost of improvement has been incurred, the same will also be deducted while computing the capital gains. The resultant LTCG will be taxable at 12.5% under Section 112 of the Act, plus applicable surcharge and health & education cess.
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
My father purchased a plot in 2016 for Rs 50,65,000. He passed away five years ago and I inherited the property as his sole heir. In 2023, I started constructing a house on this land, which was completed in July 2024. I am currently residing in this house. If I sell it now, how will the capital gains be taxed?
Shubham Agrawal Senior taxation adviser, TaxFile.in: Judicial precedents, including Smt. Seema Shah v. ITO (2022), establish that land and the building constructed on it are separate capital assets. Applying this, it becomes clear that their holding periods and costs must be determined independently. In your case, the land was purchased by your father in 2016 for Rs 50,65,000 and inherited by you five years ago. As per the Income Tax Act, your father’s holding period is included in yours, meaning the land is deemed held since 2016. As this period exceeds 24 months, the land is a long-term capital asset, and its cost of acquisition will be your father’s purchase price with indexation benefit up to the year of sale. The house constructed by you in July 2024 is to be treated differently. Since it has been held for less than 24 months, it is treated as a short-term capital asset. The construction cost will be deductible from the sale proceeds, but no indexation is allowed, and any resulting gain will be taxed at normal slab rates. On the sale, the total consideration must be fairly apportioned between land and building and calculations may be done accordingly.
I have been a non-resident for the past 50 years. I purchased a property in India in 1979 while I was a non-resident. Now I wish to sell it. How will the capital gains tax be calculated? Can I still opt for indexation to compute the capital gains?
Amit Maheshwari, Tax Planner, AKM Global: Since the property was purchased in 1979, the cost of acquisition of the flat will be the purchase price or the Fair Market Value (FMV) as on 1 April 2001, whichever is higher, but not exceeding the Stamp Duty Value (SDV) as on 1 April 2001. Please note that with effect from 23 July 2024, the benefit of indexation for long-term capital assets has been withdrawn. Subsequently, an amendment was introduced allowing resident individuals and Hindu Undivided Families (HUFs) the option to choose the lower of 20% tax with indexation or 12.5% tax without indexation for properties acquired before 23 July 2024. In your case, being a non-resident, this option will not be available, and the long-term capital gain (LTCG) will be computed as the difference between the net sale consideration (i.e. sale price less any transfer expense incurred) and the cost of acquisition. Besides that, if any cost of improvement has been incurred, the same will also be deducted while computing the capital gains. The resultant LTCG will be taxable at 12.5% under Section 112 of the Act, plus applicable surcharge and health & education cess.
Ask our experts
Have a question for the experts? etwealth@timesgroup.com
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
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