Selling ancestors Properties

Dear Sir,

Hope you are doing well !!

Where a capital asset has been inherited, the period of holding of the capital asset by the previous owner also needs to be taken into consideration in computing the number of years of holding. 

-If the date of acquisition falls prior to 1 April 2001, you have a choice to consider the Fair Market Value (FMV) of the property as on 1 April 2001 as your acquisition cost. 

So, firstly you need to get the valuation report of property as on 01.04.2001.

To calculate the long-term capital gains tax payable, the following formula is to be used:

Long-term capital gain = full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer), where:

Indexed cost of acquisition = cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition.

Indexed cost of improvement = cost of improvement x cost inflation index of the year of transfer/cost inflation index of the year of improvement.

There are numerous slabs and sections under which you can save on tax if you reinvest your long-term capital gains.

You can claim an exemption from LTCG, under section 54 of the income-tax Act if the LTCG is reinvested in a new residential property located in India within the specified time frames. Where the new property is purchased, the gain is required to be reinvested either within 1 year prior to sale date or 2 years after the sale date. Where the new property is constructed, the time period prescribed for the reinvestment is within 3 years from the date of sale of the original asset.

Alternatively and/or additionally, you can invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual and get the exemption u/s 54EC

Please note that in order to claim exemption, you need to invest the capital gain amount if a house property is sold. However, in case of sale of a land, entire sales consideration needs to be invested.

Please take a phone consultation for detail discussion. 

Hello,

On selling the house property received through inheritance,  holding period of both the previous owner and the current owner is taken into consideration to determine whether the property is Long Term Capital Asset or Short Term Capital Asset. 

If the period of holding of the property is more than 2 years, LTCG would be applicable and the same is taxed at 20% + cess.

LTCG = Sale consideration minus cost of acquisition and cost of improvement if any.

Cost of acquisition of property acquired before 1/04/2001 is FMV as on 1/04/2001.

For exemption from Capital Gain, you can invest the consideration received in another house property by either buying one within 2 years or constructing one within 3 years from the date of sale u/s. 54/54F.

I hope that this answer satisfies your requirement.

Regards,

CA Hunny Badlani

From property mentioned above I am assuming its a land and if you sell such land tax would be levied @20% and you can save capital tax on same just by investing entire sale consideration in new flat or by investing capital gain amount upto 50 lakh in bonds u/s 54EC.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Hi,

You need to pay 20% tax on capital gain amount. Amount of capital gain would depend upon sale price, sale date, purchase price and purchase date by your ancestors.

You can save taxes by buying a ready flat within 2 years from the date of sale or constructing a flat/house within 3 years from the date of sale 

Amount of reinvestment would depend upon the fact that whether your property is land or a building?

- It is a sale of long term capital asset which attracts special rate of basic tax @20% , surcharge, cess @4%.

- To buy another property, time limit is 2 years from the date of transfer and 3 years for construction.

- To save tax, it is better to invest in the property.

- If the investment can not be made by the date of filing of ITR for the previous year in which the property was sold then you should open Capital gain account to save tax.

- First calculate long term capital gain considering indexation.

- Facts provided by you are insufficient to advise you with 360 degree analysis.

- Please take personal phone consultation.