Photo: iStock
Photo: iStock

Capital loss from house sale can be set off against capital gains for 8 years

Any gains or losses arising from the sale of a capital asset are capital gains or capital losses. The gains are taxable in the year such transfer of asset takes place

I sold my first property and reinvested the amount in purchasing another property. I purchased my second property in 2016. Will the long-term capital gain be applicable for 24 months or 36 months? Can I save on taxes by investing in bonds now? What is the impact of the sale of my first property on the second one? Here are the details: bought first property in 2010 for Rs55 lakh and sold for Rs97 lakh in 2016; bought second property in 2016 for Rs1.4 crore and am planning to sell it within 24-36 months. 

—Name withheld

Any gains or losses arising from the sale of a capital asset are capital gains or capital losses. The gains are taxable in the year such transfer of asset takes place. And in the case of capital loss, the same can be carried forward for set-off against any future capital gains for a period of 8 years. 

Assets which are held for more than 36 months are considered as capital asset. However from financial year (FY) 2017-18, the period of 36 months has been reduced to 24 months for immovable property (land, building and house property).

Some assets are considered as long term if they are held for more than 12 months, for example listed equity or preference shares, securities, units of UTI, equity-oriented mutual funds, and zero coupon bonds.

Hence, with this amendment, the new property of yours will become long-term in 2018 once it completes 24 months. And being long-term, it will also be eligible for indexation benefits as well as lower rates of taxation.

There is exemption available from long-term capital gains tax provided the capital gains are reinvested in capital gain bonds under section 54EC of the income tax Act. These bonds are issued by National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC). These bonds carry a fixed tenure of 3 years and do not carry any surrender or exit option before maturity.

You need to invest in these bonds within 6 months of earning the capital gains or before the due date of tax filing, whichever is earlier. You cannot invest in these bonds now for the capital gain exemption as there is no transfer of asset of the new property and the capital gains are not realised. It can only be done after there is a transfer of asset. 

The way you had reinvested the sale proceeds of your first property in the second property (and the investible amount being much higher than the capital gains of the first property), there was no capital gain incidence on the sale of your first property under section 54.

This benefit of reducing your capital gains tax can be again used by reinvesting the capital gains in another residential property.

My son is an NRI. He is continuing with his PPF account in India (which he had opened when he was not an NRI). Does he need to link Aadhaar, which is now said to be mandatory for PPF account also?

—Name withheld on request

It is not mandatory for a non-resident Indian (NRI) to have an Aadhaar card. And as your son’s Public Provident Fund (PPF) account was opened when he was an Indian resident, he can continue to hold the PPF till its maturity. However, the PPF account cannot be extended beyond its maturity period as NRIs are not allowed to open or extend a PPF account. And being a non-resident, he does not have to link the PPF account.

However, the same needs to be informed to the bank or post office that the residential status of your son has changed from Indian resident to that of NRI.  

I have a question about closing my father’s Hindu Undivided Family (HUF), which was set up in 1960. Our family comprises my mother and four sisters, who were all married by the end of 1975. My father passed away in 1989 and my mother became the karta. She subsequently passed away in 2013 and I am the karta now. Can I just close the HUF since, according to the recent Supreme Court ruling, this HUF comes under the old laws which would not include any of the married sisters? Could I just send in a declaration to the I-T department and surrender the HUF PAN card? 

—Name withheld on request

You can close the HUF by partition of its assets. However, there cannot be any partial partition of assets.

You can prepare a partition deed and can even get it duly registered and stamped and after that, the HUF will come to a close. 

You can also write to the income tax officer under whose jurisdiction the HUF’s taxes are being filed and mention that the HUF is being dissolved, resulting in the PAN card being surrendered. Attach a copy of the deed that states the HUF is being dissolved, as well as an acknowledgment of the tax return being filed before discontinuation of HUF. 

Surya Bhatia is managing partner of Asset Managers

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