I bought a flat in September 2014 in Ahmedabad. Now I want to sell this flat and invest the money in the stock market. My wife and I have availed a joint home loan and we are paying the EMI from a joint bank account. What will be my tax liability if I sell the flat this year and invest the money in the stock market? Do I need to disclose this in the ITR form?
As the residential house was held for more than 24 months, it shall be considered as long-term capital asset. The resultant gain or loss arising out of the sale would be taxable as long-term capital gains or loss (LTCG or LTCL) in the ratio of ownership (i.e. funding of the cost of property) between you and your wife.
LTCG will be computed as the difference between the net sale proceeds (sale proceeds less brokerage or other expenses directly connected with sale) and the indexed cost of acquisition and improvement. The cost will be indexed using the Cost Inflation index (CII) notified by the tax authority for the year of purchase (CII for FY2014-15 is 240) and the year of sale (CII prescribed for FY 2019-20 is 289). The tax is payable at 20% (plus applicable surcharge and cess) on the resulting LTCG.
In the case of sale of a residential house, an exemption can be sought in any of the following ways, subject to the prescribed conditions and timelines: Under Section 54 of the Income-tax Act, 1961, by investing your respective portion of LTCG in a new residential house situated in India; under Section 54EC of the Act, by investing your respective portion of LTCG in specified bonds; under Section 54GB of the Act, by investing your respective portion of the net consideration in equity shares of an eligible startup.
As you propose to invest the sale proceeds in the stock market (and none of the aforesaid avenues), the same would not be eligible for any exemption under the Act.
Separately, you will need to disclose the above sale transaction in yours as well as your wife’s India tax return in the proportion of the ownership, under the Capital Gain Schedule, in the year of sale.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at email@example.com