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Long term capital gains and income tax on settlement

Srinidhi (Assistant Manager) (31 Points)

14 July 2015

I'm 66 years old and I own a residential house property (independent house) in Chennai that is 25 years old, presently lying vacant.

I intend to dispose it off and distribute the proceeds among my wife, daughter (non-resident indian) and son (resident indian).

From an Income Tax and Long-term Capital Gains perspective, what are the best possible ways to do this so as to legally maximise gains for the beneficiaries and minimise outgo towards Capital Gains Tax and Income Tax from all concerned?

I thank you all in advance for taking time to help me with your answers here.

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4 Replies

CMA Poornima Madhava (CMA) (13112 Points)
Replied 14 July 2015

It basically means gifting the proceeds among family members. If so, no tax is payable on such income by the recipient (viz. yr wife, son & daugher as they are relatives).
Since it is long-term capital asset, gain is chargeable to tax @ 20% flat rate + EC. If u could invest the proceeds in any other asset like house/bonds etc, then only exemption is available for this. In case you are not having any other income, then exemption limit for u would be up to Rs.3 lacs.

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Srinidhi (Assistant Manager) (31 Points)
Replied 14 July 2015

Originally posted by : Poornima Madhava
	It basically means gifting the proceeds among family members. If so, no tax is payable on such income by the recipient (viz. yr wife, son & daugher as they are relatives). Since it is long-term capital asset, gain is chargeable to tax @ 20% flat rate + EC. If u could invest the proceeds in any other asset like house/bonds etc, then only exemption is available for this. In case you are not having any other income, then exemption limit for u would be up to Rs.3 lacs.

Thank you very much, Poornima Ma'am.

To help me understand this better, say if the capital gain after sale of my house is Rs.50 lakhs or under, should the entire gain be re-invested in bonds or property or only the extent to which taxes on the gain are applicable? I am not really interested in re-investing in property but want to reduce the LTCG to have my family members benefit more from it.

I read in another thread in this forum that there is some Exemption for Capital Gain tax u/s 54EC where it shall be restricted only to 50 Lacs. The thread also says "however you may ,simultaneously , opt for exemptions under other sections [54,54F,54GB]. Note that in some cases you have to invest net consideration and in some you have to invest capital gain."

Please clarify on the above.

CMA Poornima Madhava (CMA) (13112 Points)
Replied 14 July 2015

For section 54 & 54EC, amount exempt is investment in the new asset or capital gain, whichever is lower. For 54F & 54GB, amount exempt is (Investment in the new asset / net sale consideration x capital gain). So if u want to avail full exemption, u need to invest to the extent of capital gain in case of 54 & 54EC and in case of 54F & 54GB, entire sale consideration to avail the benefit of full exemption.

If u r not interested in investing in another house property, u can buy NHAI/REC bonds and claim exemption u/s 54EC. Option of 54GB also there but its quite tricky. I suggest that u Google for more info and decide.

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