You may get exemption for capital gains tax by reinvesting the sale proceeds of a house

The LTCG shall be computed as the difference between net sale proceeds and the indexed cost of acquisition and improvement


Pradeep Gaur/Mint
Pradeep Gaur/Mint

My father sold his house property to me in April 2012. I resold the property in July 2016. Will I be liable to pay long-term capital gain (LTCG) tax or short-term capital gain (STCG) tax on the sale proceeds?

—Santosh Kumar Gupta

As the house property has been held by you for more than 36 months from date of acquisition (i.e., April 2012), the gains, if any, resulting from sale of house property shall be termed as LTCG and shall be taxable in your hands.

The LTCG shall be computed as the difference between net sale proceeds and the indexed cost of acquisition and improvement. The cost of acquisition and improvement, if any, incurred by you, subsequent to purchase should be indexed or inflated as prescribed.

You can avail an exemption from LTCG tax by reinvesting the LTCG in a new residential property located in India, within the prescribed time limits (section 54 of the Income-tax Act, 1961). Alternatively, you can invest the LTCG in the notified bonds within 6 months from the sale date, subject to a limit of Rs50 lakh (section 54EC).

Just for your information, if the sale proceeds receivable from sale of his share in the house is less than the value adopted for payment of stamp duty, then for computing the capital gains, the value as assessed for the purpose of payment of stamp duty shall be considered as the sale value.

Accordingly, the balance LTCG, if any, considering the aforesaid re-investment avenue, shall be taxed at flat 20%. Also, surcharge at 15% (if applicable) and education cess at 3% should be levied on such tax liability.

If the sale consideration exceeds Rs50 lakh, appropriate tax will have to be deducted and deposited by you from the payments made to the buyer, assuming both of you are tax residents of India (section 194-IA).

Can you tell me what all tax deductions can be availed under sections 80C and 80D for insurance premiums paid?

—Rathi Shah

Outlined below are the specific tax deductions available in respect of insurance premium or contribution:

Section 80C

The following payments or contributions in the name of specified persons qualify for deduction, subject to the overall limit of Rs1.5 lakh per annum.

a) Life insurance premium paid;

b) Any contribution for participation in the unit-linked insurance plan (Ulip) 1971;

c) Any contribution for participation in any Ulip of specified LIC Mutual Fund; and

d) Any payment for annuity plan of Life Insurance Corporation of India or any other specified insurer.

The specified persons include: self, spouse and any child of such individual.

Please note that the aforesaid deduction is subject to the condition that the specified premium amount cap should be of certain percentage in relation to the actual capital sum assured.

Further, if the individual terminates the life insurance policy or his participation in any Ulip within the specified period, the tax deduction allowed in the earlier financial years (FYs) shall be taxable in the FY in which the plan or participation is terminated.

Section 80D

Mediclaim or health insurance:

1. An individual can claim tax deduction on payments made for self and family towards health insurance premiums up to Rs25,000 per annum (including Rs5,000 towards preventive health check–up). For senior citizens (i.e., 60 years and above), the deduction is restricted to Rs30,000 per annum (including Rs5,000 towards preventive health check-up). Family includes spouse and dependent children subject to specified conditions.

2. Additional deduction up to Rs25,000 a year can be availed in aggregate towards health insurance premium of parents (including Rs5,000 towards preventive health check-up). If either of the parents are senior citizens or very senior citizens (i.e., 80 years and above), the deduction gets extended to Rs30,000 per annum.

3. Also, tax deduction is available for medical expenditure incurred for self or family or parents up to Rs30,000 per annum. This deduction is available only in respect of payment of health insurance for very senior citizens subject to the condition that there is no effective health insurance policy in place for them.

Also, the aggregate deductions under points (1) and (3) or (2) and (3) should not exceed Rs30,000 per annum.

However, the aforesaid benefits are not available if premium is paid by cash.

Parizad Sirwalla is partner (tax), KPMG.

Queries and view at mintmoney@livemint.com

More From Livemint