Your taxes

My brother purchased land for Rs 25000 in 1975, got a flat from the promoter in lieu of his land in 2001 and died intestate in 2007.

As his heir, I inherited the flat in my name in 2009 and have now decided to sell the flat. What is the cost of acquisition for me and what are the capital gain tax implications?

D Chanda

In case of inherited property, the period of holding is counted from the date of purchase of the property by the original owner who had actually acquired the property, other than by way of inheritance and gift.

The cost of acquisition in case of inherited property shall be deemed to be the cost at which the previous owner acquired it. Any capital asset held for more than three years (other than specified securities), will be treated as a long term capital asset (LTCA).

Given the limited facts, the flat inherited by you qualifies as a LTCA (held for more than three years) and thus, the long term capital gain (LTCG) on sale of such a flat will be subject to tax at 20 per cent (exclusive of cess and surcharge). The cost of acquisition will be the cost at which your brother acquired the flat.

LTCG can be claimed as exempt from tax by reinvesting the gains in specified assets/bonds subject to certain conditions.

I want to sell a plot purchased in 1993. The estimated sales proceed would be about ₹65 lakh. If I purchase capital gain bonds for ₹50 lakh in FY 2015-16, and the balance in FY 2016-17, will I get tax exemption for the entire ₹65 lakh? If I purchase a resident house jointly with my son with 50 per cent contribution from me, will I be eligible for exemption for my part of the investments?

Sandesh Brave

As per Section 54EC where the capital gain arises from the transfer of a LTCA (held for more than three years) and the assessee invests the capital gains in the long-term specified asset, the capital gain shall not be taxable up to ₹50 lakh, subject to specified conditions.

Such investment has to be made at any time within a period of six months from the date of transfer of LTCA.

The aforesaid investment made during the financial year in which the LTCA is transferred and in the subsequent financial year (aggregate amount of investment) cannot exceed ₹50 lakh. Therefore, in your case, the investment of the capital gain so arisen, should be made in the specified bonds within a period of six months from the date of transfer.

Also, as per Section 54F , if an individual sells a LTCA (other than a residential house), then the LTCA (if any) shall be exempt from tax in case the net sale proceeds are invested in a residential house property, subject to satisfaction of other prescribed conditions.

In your case, subject to other specified conditions, if the investment in the new residential house is made by you jointly with your son, the exemption u/s 54F of the Act, would be available to you provided the net sales proceeds of ₹65 lakh is invested in the residential house which should be equal to 50 per cent of the cost of the new house.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in