• Property capital gain

Our ancestral property has be settled between 4members. Mother, 2daughaters and 1 son.
2daughaters share is gifted to their only brother.
Now the entire property came into mother and son.
Total property is 880sq.yards.
Out of which 476 son share, & 404 is mother + son share
476 share is given JDA to developer with 50:50.
Total 8flats from which 4flats for land owner and 4 for builders
Out of 4 land owners share, 2 are for mother and 2 are for son.
Mother sold one flat to customer.

How should I file the capital gain tax now for both of them
Asked 6 years ago in Capital Gains Tax

Hi

Has the construction been completed??

When was the JDA entered into?

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

476 was only son share. Son is liable for income tax on the stamp duty value of 4 flats which he got from builder. Mother is liable for flat sold to customer on actual sale consideration.

Vivek Kumar Arora
CA, Delhi
4825 Answers
1030 Consultations

5.0 on 5.0

There are two series of transactions here.

Capital gain shall be first levied on receipt of flats by son and mother.

Then, there would be capital gain on sale of flat to the customer.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

Same reply

Vivek Kumar Arora
CA, Delhi
4825 Answers
1030 Consultations

5.0 on 5.0

hi,

As far as the capital gains computation is concerned, mother will be liable to capital gains tax based on the Actual Sale proceeds she received from the customer.

For the son, he will be liable to pay taxes on the registered value of the four flats which he received from builder.

Regards,

Nikhil

Nikhil Khanna
CA, Mumbai
1429 Answers
19 Consultations

4.8 on 5.0

There's no tax on inheritance and gift from relatives. However, it's advisable to get gift deed registered.

For first transaction, it would be long term capital gains taxed @ 20%. Exemptions can be claimed with respect to these capital gains. Have you received any cash from builder or just the flats? What was the old property? A land or a house property?

Flat sale to customer shall amount to short term capital gains taxed @ 15%. This cannot be avoided.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

If the capital gains has been reinvested in a residential property there shall be exemption from tax.

Nikhil Khanna
CA, Mumbai
1429 Answers
19 Consultations

4.8 on 5.0

Capital gain shall be computed by considering the FMV of the flats in share as reduced by the proportionate cost of acquisition.

Whether the initial capital gains shall be exempted or not shall depend upon whether the property given to builder was land or a house property. Do you or your mother own any other house property?

STCG on flat sold to customer shall not be exempt in any case.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

If it was a land with house i.e. a house property, Then section 54 applies according to which you can reinvest the sale proceeds in a residential house property to claim the exemption.

So basically, exemption can be availed by you and your mother in respect of 1 flat in share invested in by each of you. Or you can also claim exemption for the duplex house built if it's costs are more than 1 flat.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

I think there are too many facts to be known and too many provisions to be explained. It would be better if one to one conversation is undertaken. This can be done through a phone consultation.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

Ideally you were liable to pay tax in 2014 when you entered into a JDA. Since you have not paid taxes at that time, you can pay it at the time of getting possession.

Capital gain will be calculated by deducting proportionate indexed cost from the market value of the flat.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Hi,

As advised earlier, if the amt has been reinvested in a residential property, your mother will be eligible for tax exemption.

Regards,

Nikhil

Nikhil Khanna
CA, Mumbai
1429 Answers
19 Consultations

4.8 on 5.0

Hi,

Please note the following points:

1) JDA entered into between the builder, out of which 8 units constructed and 4 retained by him. In this case, cost of construction of 4 units shall be treated as your cost of improvement for these units. Rest 4 units which are transferred to the builder, shall be treated as sale, cost would be cost of construction + original proportionate cost of acquisition of land. Sale price would be cost of construction of entire 8 units.

2) In spite of the fact that there was no cash dealing with the builder, but consideration provided by builder to you for transfer of 50-50 units is the cost of construction of the units.

3) You have to pay tax arising on the sale of units to builder as well as on sale of one of the unit by your mother before the close of financial year, to save interest.

4) To calculate the taxation component, exact date and cost of acquisition of land would be required. Cost of construction by builder would also be required. Stamp Duty valuation for 4 units transferred to builder, whether any sale deed signed yet or still on JDA basis. Stamp duty valuation of the transferred unit as well would be required.

5) If the sale amount of one unit (35 lakhs) has been invested for acquisition of another residential property, tax would be saved u/s 54.

Regards,

Sunny Thakral
CA, Delhi
224 Answers
8 Consultations

5.0 on 5.0

Dear Sir,

In the entire question, you didn't mentioned cost of land. Sale consideration of mother and share (if equal) would be Rs. 38.08 lacs each. Deduct the indexed cost of acquisition to determine the LTCG. As LTCG tax is taxable at special rate so no benefit of very senior citizen. If the other income is fall short of exemption limit of Rs. 5 lacs, she would get the benefit of the remaining exemption limit from capital gain.

As mother sold the property within 2 years form the date of title, the gain on sale of property would be STCG and she would not be entitled for any exemption. FMV of the old house would be treated as Cost of acquisition and capital gain would be determined. STCG is chargeable at normal rates.

LTCG tax rate is 20.6%. You and you mother need to file ITR-2 for the above.

We may assist you in filing the ITR.

Vivek Kumar Arora
CA, Delhi
4825 Answers
1030 Consultations

5.0 on 5.0

Let me restate the facts for clarity:

476 Sq. yds of a plot, which is part of total area of 880 Sq. yds is given for JDA on 50:50 basis. The owner of the property being given under JDA is S, the son in the family comprising Mother, 2 sisters and himself. The property is acquired by S as a gift from his sisters, who relinquished their share in the bigger property of 880 Sq. Yds.

S and his mother have received 4 flats (2 flats each) under the JDA. The market value of the plot is Rs 32,000/- per sq. yd at the time of the execution of the JDA. The built up area is 11,892 Sq. ft, which is valued @ Rs 1,115/- Sft. (Here I'm not clear as to whether this is for 8 flats or 4 flats,the share of S, but I'm assuming that it is for 8 flats, as the average area of each will then be 1486.5 Sft, which is reasonable on flats constructed on 476 sq. yds.).

Mother sold 1 flat for Rs 35 lakhs. This money was used for constructing a duplex house in the vacant plot, i.e., 404 Sq. yds, which is the part of the ancestral property representing the shares of mother and Son in equal proportions.

Now the issues

There are two capital assets that are sold, on which capital gains arises. The first one is at the time of the execution of the JDA in 2014 in respect of 476 Sq. yds. The second one is at the time of the sale of the flat by mother for Rs 35 Lakhs.

A Now the issues concerning taxation in respect of JDA

1) Who has to pay capital gains on the execution of JDA?

Now capital gains arise in the hands of S, who was the owner at the time of the execution of the JDA, as he received as a gift from his sisters, who relinquished their shares in the total ancestral property of 880 Sq. yds.

S ought to have filed IT Return declaring LT Gains in the relevant assessment year, 2015-16 corresponding to the financial year 2014-15. Hopefully this was done.

2) What is the cost of acquisition?

The cost of acquisition in his hands is the hands of the donors, i.e., his sisters. Again the sisters also inherited the ancestral property. Hence, the cost of acquisition is the market value as on 1st April 1981, as the assessment year in which LTCG needs to be taxed is 2015-16. This value needs to be indexed to arrive at the indexed cost of acquisition.

3) What is the consideration?

For 476 Sq. yds given under JDA, 4 out of 8 flats are given to S, the owner. As the flat owners will have ownership rights on the undivided share of land, S is retaining ownership on 238 Sq.yds(50% of 476 Sq Yds) as undivided share of land in respect of his share of 4 flats. The market value of such consideration is thus Rs 76,16,000/- (50% of Rs 152.32 Lakhs).

However, the value of his share of 4 flats is Rs 66,29,790/- only, assuming that the total constructed area of these flats is 50% of the total constructed area. However, as the stamp duty value of the plot is more, this needs to be considered as the consideration for the JDA.

Now the issues concerning taxation in respect of flat sold for Rs 35 lakhs

1) The flat seems to be sold within 3 years from the date of handing over the title to S. However, as the Capital Gains in respect of JDA was suffered at the time of JDA itself, then the value adopted for the consideration needs to be taken as the cost of acquisition of the flat, provided it was so identified and allocated at the time of JDA itself.

In such case, it can be treated as LTCG. Otherwise, it will be Short term capital gains.

2) The owner of the flat is the mother but such ownership was acquired by virtue of JDA, though she did not have ownership on the land at the time of JDA. This is a deemed gift by the son to his mother.

3) The cost of acquisition of each flat is about Rs 19.04 Lakhs ( assuming that the market value of the land was used for the purpose of taxing LTCG on JDA). This can be indexed, if it is a LTCG. The LTCG, without indexation works out to Rs 16 Lakhs (Approx) on the sale of flat, payable by the mother.

As mother is a senior citizen, there is no need to pay any advance tax provided, she does not have any business income.

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

It seems your query is been answered.

Swati Agrawal
CA, Mumbai
1146 Answers
7 Consultations

5.0 on 5.0

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