I am one of the recipients of sale of an ancestral landed property at Asansol, West Bengal. It was a joint property of my grandfather along with his four brothers. After the death of my grandfather and my father, the property was sold. From our grandfather's share we received ₹16 lakh and I received ₹4 lakh towards my father's share.
I work for a bank and draw an annual salary of ₹8 lakh. Do I have to pay IT on my share of ₹4 lakh ? I do not want to keep the money in any capital gain account and want to settle the tax this year. At what rate do I have to pay tax? Is indexation applicable? How does one arrive at the taxable amount? The ancestral property was acquired in 1950.
According to the provisions of the Income Tax Act, 1961, if any asset is received without consideration, the fair market value of which exceeds ₹50,000, the whole of the aggregate fair market value of such property is chargeable to tax.
This provision does not apply in the case of transfer of assets under a will or by way of inheritance.
The income, however, received post-inheritance by the transferee from such assets is treated as the income of the transferee and is taxed in his hands.
Assuming that you have inherited the landed property from your grandfather/father, the same shall not be taxed in your hands upon inheritance.
However, any income earned by you by way of sale of such inherited landed property is taxable as capital gain in your hands.
According to the facts given, landed property inherited by you qualifies as a long-term capital asset (that is, held for more than three years) and thus, the long-term capital gain on the sale of such property (being long-term capital asset) will be subject to tax at a rate of 20 per cent (exclusive of cess and surcharge).
These gains are taxed at a flat rate and the assessee does not get benefit in case he is otherwise taxable at a lower rate (say 10 per cent). The cost of acquisition (COA) in case of inherited property shall be deemed to be the cost for which the previous owner acquired it. In your case, the COA of property shall be the cost at which your grandfather purchased the same in 1950.
It should be noted that any cost of improvement incurred by the previous owner is also included in the COA while computing the capital gain. Further, for assets acquired prior to April 1, 1981, the assessee has the option to choose the COA of the asset, which shall either be the purchase price or the fair market value of the asset as on April 1, 1981.
The benefit of indexation shall be available on such cost of acquisition while computing the capital gain.
The writer is a practising chartered accountant