ITR 4 can be used by an Individual/HUF to report income on presumptive basis as provided under specified sections of the Income Tax Act
I inherited my uncle’s flat 2 years ago. He had purchased it in 1962. I have sold that for ₹ 65 lakh. How much tax am I liable to pay? Can I save any of it by reinvesting a part of the sale proceeds?
—Nilesh. N. Randeria
You will be liable to pay tax when you sell the flat, on any capital gains that arise. Since the flat was held (in aggregate by you and your uncle) for over 24 months, the gains are taxable as long-term capital gains (LTCG). You can choose to treat the fair market value (FMV) of the property as on 1 April 2001 as the cost of acquisition instead of the actual costs incurred by your uncle to purchase the property, as the property was originally acquired by your uncle prior to 1 April 2001. Such cost of acquisition (actual cost of FMV as on 1 April 2001) will then be indexed using the Cost Inflation index (CII) notified by the tax authority as on 1 April 2001 (CII for FY 2001-02 is 100) and the year of sale (CII for FY 2018-19 is yet to be notified), to determine the impact of inflation on the cost of acquisition. Tax is payable at 20% (plus applicable surcharge and cess) on the resulting capital gain.
An exemption can be sought by reinvesting the capital gains in a new residential property in India, within 1 year prior or 2 years after the sale date or within 3 years (if the property is constructed). Alternatively, the gains can be reinvested in specified bonds notified by the central government within 6 months from the sale of the property.
ITR 4 form is for income from presumptive business, but it does not contain any column for capital gain/loss on sale of investment/property. So if one has income from business and capital gain/loss, then he has to file ITR 3 but then he will not be able to avail the benefit of presumptive income. What can we do?
ITR 4 can be used by an Individual/HUF to report income on presumptive basis as provided under specified sections (for example, Section 44AD/44AE and 44ADA) of the Income Tax Act, 1961. Any salary income, rental income/income from other sources can also be reported in ITR 4; however, the presently notified ITR 4 form for FY 2017-18 cannot be used to report capital gain. In fact, instructions for ITR 4 form for FY 2016-17 clearly stated that ITR 4 cannot be used if the individual has income from capital gains. In such a case, you will need to use ITR 3 to report both income taxable on presumptive basis and also capital gain/loss. There is a separate line item (No. 4 in Schedule BP) in ITR 3 form of FY 2017-18, which allows to report income from presumptive basis taxation.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.