If a house sells for more than Rs50 lakh, the property’s buyer has to deduct 1% tax

In case of gift, the period of holding of land is reckoned from the acquisition date of land by the owner who has actually acquired the said asset, otherwise than by inheritance or gift


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My late father had bought 1 acre of land for Rs1 lakh in October 1981 and gave it to me in 2000. I want to sell it now for Rs15.30 crore. What is the rate and amount of tax on this?

—Murali Pillai

We have assumed that your gifted land is not agricultural land. Accordingly, any gains, resulting from sale of land shall be taxable in your hands as ‘capital gains’.

In case of gift, the period of holding of land is reckoned from the acquisition date of land by the owner who has actually acquired the said asset, otherwise than by inheritance or gift. As the land had been held for more than 36 months from acquisition date, the same shall be termed as long-term capital asset and the resulting gains, if any, shall be classified as long-term capital gains (LTCG).

The aforesaid cost of acquisition and improvement, if any, made subsequent to the purchase, if any, by you and your father should be increased using the applicable Cost Inflation Index (CII) notified by the income tax department. CII for financial year (FY) of purchase (i.e., 1981-82) is 100 and for FY of sale is 1125. Hence, your indexed cost of acquisition will be Rs12.25 lakh (i.e., Rs1 lakh*1125/100).

The LTCG should be computed as the difference between net sale proceeds (i.e., Rs15.30 crore) and indexed cost of acquisition (Rs12.25 lakh) and improvement, if any.

You can avail an exemption from LTCG tax by reinvesting the net sale proceeds in one new residential property situated in India, within the specified time and conditions laid down in section 54F of the income tax Act.

You could also invest the LTCG in the bonds notified under section 54EC. The investment should be made within 6 months from the sale date, subject to a cap of Rs50 lakh. Accordingly, the balance LTCG, if any, considering the aforesaid re-investment avenue, shall be taxed at flat 20%. Also, surcharge at 15% and education cess at 3% should be levied on such tax liability. As per section 194-IA, where the sale consideration exceeds Rs50 lakh, the buyer of the property will have to deduct tax at 1% assuming you are a tax resident of India.

I have two apartments of which I want to gift one to my daughter. What will be the tax treatment?

—Arunesh Misra

Any immovable property received by an individual from any person during any FY without consideration and if the stamp duty value of the said property exceeds Rs50,000, the same is taxable under the head ‘income from other sources’ in the hands of the recipient.

An exemption is available if the property is received from a relative, including among others: the individual’s parents. Accordingly, there should not be any tax implications in your daughter’s hands. You shall also not be taxed on the above gift transaction.

With respect to the above transaction, it would be advisable to have documentation in place to substantiate the genuineness of the transaction.

We have assumed that your daughter is major (i.e., attainted the age of 18 years). Accordingly, any subsequent income from letting out of the apartment, or sale of the apartment, shall be taxable in your daughter’s hands as ‘income from house property’ or ‘capital gains’ depending on the nature of income.

Please note that if your daughter is minor, clubbing provisions will be applicable. Accordingly, the aforesaid subsequent income, if any, shall be included in the income of the either of the parents, whose total income during the relevant FY is higher.

I earned interest of Rs70,000 from my savings account for 2015-16. How much tax do I have to pay on the interest?

—T.P. Saha

The interest earned on a savings bank account is taxable. One can claim tax deduction with respect to savings bank interest earned from total income, subject to maximum cap of Rs10,000 per FY under section 80TTA. The balance interest shall be taxable as per the applicable income tax slab rate.

Accordingly, Rs10,000 can be claimed as exempt from tax. Depending upon your applicable income slab rate, balance Rs60,000 should be taxed.

Parizad Sirwalla is partner (tax), KPMG.

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