LTCG Tax, Income Tax, Property Sale. Property Sale Tax Liability, DDA Flat, Property mutation, FMV certificate, stamp duty
I have inherited a Delhi Development Authority (DDA) flat purchased by my father in 1985 for ₹1 lakh. It was originally allotted to him and I intend to sell it for approximately ₹55 lakh. Can you guide me on the tax liability? My father died without a Will in 1999 and mutation in my name was done in February 2019.
— Alok Kapur
You will be liable to pay tax when you sell the flat, on any capital gains that arise. As the flat had been inherited by you from your father, the period of holding will start from the date of acquisition by your father. As the aggregate period of holding is more than 24 months, the said flat will qualify as a long-term capital asset.
As the flat had been originally acquired before 1 April 2001, you can consider the higher of the actual purchase costs or the fair market value (FMV) of the flat as on 1 April 2001 as the cost of acquisition for the purpose of calculating long-term capital gains (LTCG) on the sale of such flat. You may, therefore, obtain valuation of the flat as on 1 April 2001 and use either the FMV or the actual purchase cost at your discretion. While there is no express requirement to obtain a FMV certificate, from a documentation perspective, one should consider obtaining such a certificate from a registered valuer.
The indexed cost of acquisition of the flat in your case will be calculated as the cost of acquisition (i.e. ₹1 lakh) or FMV as on 1 April 2001 divided by the Cost Inflation Index (CII) of FY 2001-02 (i.e. 100) multiplied by the CII of the year of sale (CII prescribed for FY 2018-19 is 280. CII for FY 2019-20 has not yet been prescribed). Accordingly, LTCG can be computed as the difference between net sale proceeds (sale proceeds less brokerage expenses) and the indexed cost of acquisition. If the stamp duty value of the property is higher than the sale proceeds, such value will need to be considered as the sale price.
Exemptions as available under the Income-tax Act, 1961, towards reinvestment of such LTCG in specified assets may be separately evaluated. Tax is payable at 20% (plus applicable surcharge and cess) on the resultant net LTCG. If tax is payable, you will need to deposit tax on LTCG as per specified dates of payment of advance tax.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India