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I bought a house in 2012 and sold it at a loss in 2021. The circle rate was higher than my selling price. Can I claim long-term capital loss (LTCL) from the sale of the property and set it off against long-term capital gains (LTCG) in stocks or other financial investments? How will the higher circle rate affect my losses? Can I set off the losses from the above sale against the sale of another property in which I am likely to have LTCG tax? Can I invest the proceeds from the house sale in capital markets, as I do not have any long-term or short-term capital gains? What are the tax implications of selling a house property at a loss?

—Vandana

 

We understand that the property you sold was a residential house. As you held the property for more than 24 months, the asset shall be considered as a long-term capital asset and losses arising from its sale would be taxable as long-term capital loss (LTCL) in your hands.

The LTCL from the sale of such a residential house will be computed as the difference between net sale proceeds (sale proceeds less brokerage expenses) and the indexed cost of acquisition and improvement. The indexed cost of acquisition of the asset in your case would be calculated as cost of acquisition / cost inflation index (CII) of year of acquisition * CII of year of sale. (CII prescribed for FY2012-13 and FY2021-22 are 200 and 317, respectively).

Please note if the actual sale consideration is lower than the stamp duty value by more than 10%, for the purpose of above calculations, the stamp duty value would be regarded as the deemed sale consideration.

Accordingly, in your case, if the actual sale consideration is lower than the stamp duty value by more than 10%, then the stamp duty value shall be deemed to be the sale consideration for the purpose of the above-mentioned computation of LTCL.

If the calculation results in LTCG, the same would be taxable in your hands at 20% (plus applicable surcharge and cess) on the resulting LTCG (net amount set off from any past or current year eligible losses).

There is no restriction under the income tax laws on investing the sale proceeds of the house property in capital markets (stocks and mutual funds). However, if such investment is not made in a new residential house situated in India, specified bonds or equity shares of an eligible startup, you may not be eligible for claiming the LTCG as exempt from tax.

In case of LTCL, it can only be set off against LTCG. Accordingly, if you incur LTCL on the sale of this residential house, you will be eligible to set off such LTCL against any other LTCG during the year.

You can also carry forward any unadjusted LTCL for eight financial years immediately succeeding the current financial year and set off the same against future LTCG.

It should be noted that to enable you to carry forward the LTCL, you will be mandatorily required to file your income tax return (ITR) within the prescribed tax filing due date.

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

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