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Capital gains tax

v.raj (individual) (104 Points)

05 May 2018

Query

1. when a residential house property is inherited, is there any income tax payable by the person/persons inheriting the property?

If not,

2. when the person inheriting the property sells it, whether capital gains tax would be payable?

Illustration:

Supposing a house property originally costing Rs. 10 lacs(say) is inherited. The person inheriting decides to sell it and the price is Rs. 1 crore. Does he have to pay Capital Gains Tax on the difference after indexation?

If yes, then does it not amount to indirectly paying tax on inherited property?

please advise. thanks

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18 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (168945 Points)
Replied 05 May 2018

1. No

2. Yes. Tax over capital gain....... Not over total amount !!!

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v.raj (individual) (104 Points)
Replied 05 May 2018

do understand the second response that it is to be paid only on the capital gains.

but fact remains that ancestral property which might have been acquired at a low price years ago by the ancestor and sold by the inheriter afterwards gets taxed. effectively it means that while it is not taxed when it comes in the hands ofthe inheriter, it is taxed the moment he sells it. appears to be rather unfair because it means that he has to continue holding it forever. even the inheritor's successor if he gets it and sells it, will be faced with HUGE tax liability. Further in some cases, if the property was actually constructed by the ancestor decades ago, even the cost would not be available. in such a case how wold the capital gain be determined.

thanks

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (168945 Points)
Replied 05 May 2018

In the example given by you.........

If sell price is 1 Cr....... and the cost to original person was 10 lakhs.

As per you the capital gain is calculated as per indexed cost of 10 lakhs........

While the Government is so liberal, that it calculates CG on indexed value over FMV on 01.04.2001..... which may be 30 lakhs.

Thereby Indexed cost of aquisition as on date would be 85 lakhs (appx.)

And tax would be just 3 lakhs.......... So cheers......

In case invested Rs. 15 lakhs in CG Bonds....... no tax liability over that 1 CR........

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v.raj (individual) (104 Points)
Replied 05 May 2018

thank you for your prompt resonse.

1. question: why FMV on 1.4.2001 ? is this an arbitrary date fixed by the rule?

2. how is Rs. 10 lacs turned into Rs. 30 lacs on 1.4.2001, regardless of when the property was originally acquired?

3. in case property was built say 25 years back and actual construciton cost is not available, then what is the value to be taken?

4. also, can you kindly provide link to calculating indexed cost and the relevant section of the Act.

Thank you so much

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (168945 Points)
Replied 05 May 2018

1. taxation-sale-inherited-property

2. capital-gains-tax-on-sale-of-land-house-property

3. capital-gain-calculator-fy-2017-18

1 Like

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v.raj (individual) (104 Points)
Replied 07 May 2018

Sir,

here is a concrete case:

residential house acquired by X in March 2004 at Rs. 12 lacs

X passed away. The heirs X1, x2 and x3 arrived at Family Settelement in Dec. 2007 for division of the assets of the deceased. Under the Settlement, X1 (wife) was given the flat and for the purposes of the calculation of value of assets, the flat was valued at Rs. 32 lacs on the basis of prevailing rates in the area.

Now, if the flat is sold for say Rs. 90 lacs in June 2018 or thereabaouts, what would be the capital gain tax assuming the amount realised is not invested again in buying residential proerty or in approved Bonds etc.

Whether the capital gain would be calculated with reference to the original cost or the value taken in the Family Settlement.

Thank you for guidance.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (168945 Points)
Replied 07 May 2018

COA........ 12 lakhs

DOA..... March 2004.

v.raj (individual) (104 Points)
Replied 07 May 2018

thank you sir.

and the CG TAx payable?

thanks again for the troubles

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (168945 Points)
Replied 07 May 2018

LTCG 60L

CG tax @ 20.6%

v.raj (individual) (104 Points)
Replied 07 May 2018

noted.

thank you very much for your guidance.

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (168945 Points)
Replied 07 May 2018

My Pleasure.

v.raj (individual) (104 Points)
Replied 10 May 2018

If the amount is invested in buying another house property within the allowed time limit, is there any holding period for the newly acquired property before selling the new property.?

thankyou for you patience

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (168945 Points)
Replied 10 May 2018

Yes, THREE years, to retain the exemption.

v.raj (individual) (104 Points)
Replied 10 May 2018

so after three years, if you sell, again the cycle of long term gain starts?

assuming property is sold in one/two years, can we simply pay the normal tax on short term gain . i.e. realisation on sale of new property minus cost of new property?

seems there is no way out?