Gains from sale of an inherited house shall be taxable as capital gains
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I am planning to sell a house bought by my grandfather in 2006, which I have inherited from him. How will the proceeds from the sale of this property taxed?
The gains from sale of the inherited house shall be taxable as ‘capital gains’. As it is inheritance, the period of holding of the house is counted from the date of acquisition of the house by an owner who has actually acquired the said asset, otherwise than by inheritance and gift. As the house had been held for more than 36 months, (since 2006), it shall be classified as long-term capital gains (LTCG).
The cost of acquisition and improvement, if any, made subsequent to the purchase, by you and your grandfather should be increased using the applicable Cost Inflation Index (CII) notified.
The LTCG will be the difference between net sale proceeds and indexed cost of acquisition and improvement, if any. You can avail an exemption from LTCG tax by reinvesting the LTCG in one new residential house located in India, within the specified time and condition laid down (section 54 of the income-tax Act) or in notified bonds (section 54EC) up to a cap of Rs50 lakh within 6 months of sale of the house.
The balance LTCG, if any, considering the aforesaid re-investment avenue, shall be taxed at a flat 20%. Also, surcharge, if applicable at 15% and education cess 3%, should be levied. If the sale consideration exceeds Rs50 lakh, the buyer of property will deduct tax at one percent assuming you are a tax resident of India (section 194IA).
I pay health insurance premium for myself and my parents, who are both senior citizens. Can I claim deduction for both the premiums paid?
Yes, you can avail a deduction of up to Rs25,000 (including Rs5,000 towards preventive health check-ups) from your total income in respect of health insurance premium paid for self.
Additionally, you can avail aggregate deduction of up to Rs30,000 (including Rs5,000 towards preventive health check-ups) towards health insurance premium paid for parents, who qualify as senior citizens (60 years or above during the relevant financial year (FY)). Accordingly, you can claim maximum deduction from total income up to Rs55,000 per FY.
The aforesaid deduction is available only if it is paid by any mode other than cash.
What will be the tax implications if I gift Rs2 lakh to my sister?
Any cash exceeding Rs50,000 received by an individual during the relevant FY, without or for inadequate consideration, is taxed under ‘Income from other sources’ in the hands of the recipient. An exemption is available if the said amount is received from relative, which includes the individual’s sister.
Thus, there should not be any tax implications in your sister’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 sister is a major (above the age of 18 years).
Accordingly, any subsequent income (i.e., interest or dividend) from investing of the aforesaid amount shall be taxable in your sister’s hands depending upon the nature of the income.
Please note that if your sister is a minor (i.e., below the age of 18 years), clubbing provisions will be applicable. Accordingly, the aforesaid subsequent income, if any, shall be included in the income of either of your parents, whose total income during the relevant FY is higher.
Parizad Sirwalla is partner (tax), KPMG India.
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