I have one residential property. I want to sell half the property. I bought an empty plot on 1 June 1990 for ₹30,000. Now my selling price of half the property is ₹38 lakh. Assuming sell date is 1 June 2019, what is my tax liability?
—Name withheld on request
Assuming that you constructed and have held the residential property (post construction on the empty plot of land) for more than 24 months prior to sale, the said property will qualify as a long term capital asset.
We have also assumed that you are selling half of the property along with half ownership of the plot on which the property is constructed. As you are selling half of your property, the purchase cost of the empty plot shall be attributed equally to both parts of the property (the one being sold and the one being retained). Further, the cost of construction and cost of improvement incurred if any thereafter would also be attributed equally to both parts of the property.
If both the land acquisition (which is the case) and house construction or improvement took place prior to 1 April 2001, you can choose to consider the higher of the actual total costs incurred or the Fair Market Value (FMV) of the house as on 1 April 2001 as the cost of acquisition. You may therefore obtain a valuation of the asset as on 1 April 2001 and use either such FMV or the actual cost at your discretion. While there is no express requirement to obtain an FMV certificate, from a documentation perspective, one should consider obtaining such a certificate from a registered valuer. The indexed cost of acquisition would then be calculated as cost of acquisition or FMV as on 01 April 2001 or cost inflation index (CII) of FY2001-02 (i.e. 100) multiplied by CII of year of sale. (CII for FY 2019-20 has not yet been prescribed).
If the house construction or improvement took place after 1 April 2001, the indexed cost of such construction or improvement of the house will need to be added to the indexed cost of the land (as calculated above) by applying the CII of the FY in which the construction or improvement costs were incurred.
The LTCG shall 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 considered as the sale proceeds.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at firstname.lastname@example.org