Ask Mint Money | Immovable property received from relative is exempt from tax

Ask Mint Money | Immovable property received from relative is exempt from tax

I want to sell a maternal non-agricultural land (converted from agricultural to non-agricultural in 2010) which was transferred to my name in 1995. The cost of acquisition of the previous owner is zero and has been acquired before 1 April 1981. For the purpose of long-term capital gains, which market value would be considered?

—Aarti M

As per section 55(2) of the Income-tax Act, where any capital asset becomes the property of the assessee by way of inheritance and such capital asset was acquired by the previous owner before 1 April 1981, the cost of acquisition is taken, as per the assessee’s wish, to be the cost of acquisition in the hands of the previous owner or the fair market value as on 1 April 1981. But certain judicial precedents have held that where such property was acquired by any previous owner(s) without payment of any consideration, then the cost of acquisition shall be deemed “nil" and the benefit of section 55(2) shall not be available.

Section 54B provides that capital gains arising from transfer of non-agricultural land (which was converted from an agricultural land within a period of last two years immediately preceding the date of transfer) shall be exempt to the extent such gains are used to purchase agricultural land within two years from the date of transfer. If the assessee is not able to make the purchase before the date of furnishing the return of income, then exemption under section 54B shall be available only if the gains are deposited before the due date of furnishing returns. The amount of capital gains not utilised for the purchase of agricultural land shall be taxable as short-term capital gain (since the period of holding of such asset, reckoned from the date of conversion of agricultural land into non-agricultural land up to the date of transfer in 2011 is not more than 36 months).

If you do not wish to purchase agricultural land, then capital gains exemption can be claimed if the non-agricultural land is sold after 36 months and long-term capital gains are reinvested in certain specified assets.

I want to gift my flat to my younger brother’s son or my brother’s wife or divide it equally between the two. Will such a gift be exempted from tax?

—Mahesh Arya

As per the first proviso to section 56(2)(vii), any immovable property received from a relative without consideration is exempt from tax. The term relative has been defined to include “brother of the parent of the individual" or “brother of the spouse of the individual". Accordingly, a flat received as gift by your younger brother’s son or your brother’s wife either individually or jointly, shall be exempt from tax in their hands. Further, any income derived from the flat in future, once such flat has been gifted by you, shall be considered as income of your younger brother’s son or your brother’s wife.

Nitin Baijal is Director, BMR Advisors

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