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What is taxability on commercial property?

A deduction can be claimed against the LTCG arising from sale of residential land in case the net sales consideration is re-invested by the assessee for purchase of residential house property in India within the prescribed time limits and subject to fulfilment of other specified conditions.

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Photo: Mint

Will I have to pay long term capital gains tax if I sell residential land in Mumbai and use the proceeds to buy a commercial property in Kanpur or tier 3 city in India or invest in real estate investment trusts (Reits)?

—Name withheld on request

It has been assumed that you hold a residential land for a period exceeding 24 months, thus the same qualifies as long-term capital asset (LTCA). Any gains arising from transfer of such asset shall be taxable as long-term capital gains (LTCG), in your hands at the applicable tax rate of 20% (after indexation for cost inflation) plus surcharge (as applicable) and cess.

A deduction can be claimed against the LTCG arising from sale of residential land in case the net sales consideration is re-invested by the assessee for purchase of residential house property in India within the prescribed time limits and subject to fulfilment of other specified conditions. Also, a deduction against the LTCG may be claimed by investing in specified assets such as bonds, etc.

In the instant case, considering that the reinvestment is being made in a commercial property, no deduction under the aforesaid eligible sections shall be available, and the LTCG shall be taxable.

I had suffered a loss of around 4 lakh in options trading in assessment year 2022-23. I adjusted the loss in my net taxable income and paid tax accordingly. However, tax officials objected to this adjustment (reduction of net income) and issued me a demand notice. They did not entertain any clarification. How can I adjust these losses?

—R.G. Kulkarni

The categorisation of profits earned/loss incurred from trading in options/derivatives would depend upon the specific facts of the case such as intention/ frequency of transactions/period of holding/ treatment in books of accounts etc.

In case based on the facts, the income is categorized as profits and gains from business or profession (PGBP), then as per the provisions of the Income-tax Act, PGBP loss can be set-off against any other head of income, other than under the head salary or capital gains. Any unadjusted PGBP loss can be carried forward for next 8 assessment years and can be set-off only against income under the head PGBP.

In case the income is categorized as capital gains, such loss can be set-off only against capital gains income in the same year. Short Term loss is eligible to be set off against any capital gains income (being short and long term), however long-term loss is eligible to be set off only against long term gains. Any unadjusted capital loss can be carried forward for next 8 assessment years and can be set off against capital gains income for subsequent years.

To carry forward the loss, appropriate reporting is required to be done in ‘Schedule CFL’ of the applicable tax return form. Also, it is required that the tax return is filed within prescribed due date for filing original return.

One will need to actually verify the nature of transactions, nature of activities of taxpayer, income head under which the loss has been booked, the heads of income against which it was sought to be adjusted, related disclosures, filing dates, etc. to comment on the reasons for the disallowance.

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

(Have a personal finance query? Write to us at mintmoney@livemint.com to get it answered from experts.)

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Updated: 26 Mar 2023, 10:39 PM IST
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