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Cost of inherited house is the amount paid by original owner

If the asset has been inherited, the cost of acquisition will be the cost to the original owner in the proportion of your share

We had to sell the house my grandfather owned within six months of my father’s death. The house was not registered in anyone’s name. My share was 2.5 lakh. It was bought in 1987, but we don’t know the cost. Do I have to pay tax? How do I calculate my share?

—Sandhya

As the immovable property was held for more than 24 months prior to sale (including the period of holding by your late grandfather and father), the property will qualify as a long-term capital asset. The resultant gain or loss arising out of sale would be taxable as long-term capital gain or loss (LTCG or LTCL) in the hands of legal heirs, in the proportion of the respective share.

LTCG is calculated as the difference between net sale consideration (actual sale consideration less brokerage and incidental expenses) and the indexed cost of acquisition (ICOA) and improvement.

Since the asset has been inherited, the cost of acquisition will be the cost to the original owner in the proportion of your share. Where an asset is bought before 1 April 2001, its cost for calculating LTCG on sale shall be substituted with its fair market value (FMV) as on 1 April 2001, at the option of the assessee. As the original cost of acquisition is not available, you may consider the cost as FMV as on 1 April 2001, in the proportion of your share.

As per the Finance Act, 2020, such FMV can’t exceed the stamp duty value as on that date. ICOA will be calculated as the cost of acquisition or FMV as on 1 April 2001 / Cost Inflation Index (CII) of FY02 (which is 100) x CII of year of sale. If the actual sale consideration is lower than the stamp duty value by more than 10%, the stamp duty value will be deemed the sale consideration.

Your share of LTCG will be taxable at 20% (plus surcharge and cess). A roll-over exemption on LTCG is available, subject to conditions and timelines, under Section 54 of the Income-tax Act by investing LTCG in a residential house in India; under Section 54EC by investing in specified notified bonds; under Section 54GB by investing in equity shares of an eligible startup.

Do seek the opinion of a lawyer regarding registration and stamp duty implications.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India

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