Property sold at loss: Expert advice on tax filing and investments

My 36-year-old son is receiving ₹43 lakh from the sale of a flat we owned jointly. I had bought the flat for ₹43.50 lakh 10 years ago, so there is no capital gain as it sold for less than the purchase price. Do we need to declare a capital loss when filing our income tax returns? My son plans to invest the amount now, and use it for future expenses in 3-5 years. I assume there's no need to invest in a capital gains scheme since there is no gain from the sale. Am I right? Please advise. 

—Sridhar PS 

Any capital gain or loss arising on the transfer of a capital asset is taxable in the hands of the person who had actually provided the funds for the investment. Therefore, even if the property is held jointly between your son and you, for tax purposes, the capital gains or loss is to be disclosed in the hands of the person who had actually paid for the property, in the same proportion in which investment was made.  

You will not need to invest in a capital gains account scheme, as it is required to be done only in a scenario where one has earned capital gains on sale of a property, wishes to claim an exemption of the gains by investing the capital gains in a new residential property, and has not been able to invest in the residential property by the due date of filing the income tax return for the year in which the property was sold. This is due to the reason that section 54 allows an individual a period of 2-3 years after the date of transfer to purchase or construct a residential property respectively. Therefore, in the case of a loss on sale of a residential property, as is the case here, there is no question of claiming any exemption of capital gains, and no need to invest in any particular asset, including in capital gains account scheme.  

Also Read: A guide to capital gains tax on property sales: Navigating pre- and post-2001 rules 

In case you sold the property before 23 July 2024, your capital loss would need to be computed by considering the indexed cost of acquisition of the property. If the property is sold on or after 23 July 2024, indexation would not be available to compute the capital gains or loss, as proposed in the Budget 2024.  

You would also need to consider the stamp duty value of the property sold in computing your capital gains or loss. If the stamp duty value of the property on the date of sale exceeds the actual sale price on sale of the property, the stamp duty value would be deemed to be the consideration for computing the capital gains arising on sale of the property.  

—Mahesh Nayak is director at CNK & Associates LLP

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