Capital gain tax advice to save tax

Hi, the Circle rate or the Fair Market Value as on 1-Apr-2001, whichever is lower will be the cost of acquisition for your Father. Then, whatever the amount paid in 2010 will also be additional cost.

Both these costs needs to be indexed and then Capital Gain is arrived. If you want to save this Tax, then you have to invest the amount of Capital Gains in 54EC Bonds (issued by NHAI or REC). The deduction will be limited to the the Actual Capital Gains, Amount invested in Bonds or Rs. 50 Lakhs, whichever is lower. This means, maximum amount that can be invested in Capital Gain Bonds is Rs. 50 Lakhs. Also, this needs to be bought within 6 months from date of sale.

Your father is free to distribute any amount leftover, after paying the taxes and investing in Bonds, between you and your brother. 

He will have to pay capital gain by taking selling price as amount received and cost will be sale price mentioned while paying capital gain on JDA.

If you are not investing in real estate the only option left to save capital gain is by investing in bonds u/s 54EC but that would only be available if the property is long term.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Dear Sir,

Hope you are doing well !!

Where a capital asset has been inherited, the period of holding of the capital asset by the previous owner also needs to be taken into consideration in computing the number of years of holding. 

-If the date of acquisition falls prior to 1 April 2001, you have a choice to consider the Fair Market Value (FMV) of the property as on 1 April 2001 as your acquisition cost. 

So, firstly you need to get the valuation report of property as on 01.04.2001.

To calculate the long-term capital gains tax payable, the following formula is to be used:

Long-term capital gain = full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer), where:

Indexed cost of acquisition = cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition.

Indexed cost of improvement = cost of improvement x cost inflation index of the year of transfer/cost inflation index of the year of improvement.

There are numerous slabs and sections under which you can save on tax if you reinvest your long-term capital gains.

You can claim an exemption from LTCG, under section 54 of the income-tax Act if the LTCG is reinvested in a new residential property located in India within the specified time frames. Where the new property is purchased, the gain is required to be reinvested either within 1 year prior to sale date or 2 years after the sale date. Where the new property is constructed, the time period prescribed for the reinvestment is within 3 years from the date of sale of the original asset.

Alternatively and/or additionally, you can invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual and get the exemption u/s 54EC

Please note that in order to claim exemption, you need to invest the capital gain amount if a house property is sold. However, in case of sale of a land, entire sales consideration needs to be invested.

Please take a phone consultation for detail discussion. We may assist you in entire procedure.

Hi

I assume your father would have paid capital gain taxes at the time of redevelopment of the property. The sales consideration at that time shall be considered as the cost of acquisition of the property. Such cost if acquisition shall be indexed and reduced from sales consideration of 1st and 3rd floor to arrive at capital gains which shall be taxable to your father.

Since you don't want to invest in a residential house property, you may invest the capital gains in section 54 EC eligible bonds for claiming capital gain exemption. These bonds shall be redeemable after 5 years. The investment has to be made within 6 months of sale of the property.

Any amounts received by you and your brother from your father shall be exempt as gift from relatives.

Hello,

Taxation under the JDA Joint Development Agreement is different as compared to normal capital gain. Here Sec. 45(5A) comes to the scenario. As per Sec. 45(5A), Capital Gain arising under JDA are taxable in the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. And the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by the consideration received in cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset

Then further Capital Gain liability would arise on the sale of the floors in the year of the actual sale, Sale Consideration would be actual sale proceeds received and the cost of acquisition would be the Stamp Duty Value considered at the time of completion certificate.

For calculation of Cost of Acquisition, you need to get the valuation report from a certified engineer for your share in the property as on 1st April 2001, it would be your Cost of Acquisition. For share purchased from your brother, the cost incurred for the share be your additional cost. both the costs would be indexed using the cost inflation index, making it indexed cost of acquisition.

Regarding exemption from Capital Gain, since you don't want to invest in another house property, you can invest in specified NHAI/REC Bonds for exemption up to Rs. 50 LAkhs for a F.Y. u/s. 54EC.

I hope that this answer satisfies your requirements.

Regards,

CA Hunny Badlani

Firstly, Your father needs to compute the capital gains.  The cost of the property will be allowed as deduction.  He can claim indexation on the cost he paid  to acquire the brother share and also the origina cost paid by the father on the share he inherited.

The capital gains would be sale price less the indexed cost of acquisition.  Indexation is a cost inflation index which is notified by the Govt. It is done to adjust for inflation over the years. This increases one’s cost base and lowers the capital gains. Capital gains = sale price -  indexed cost of acquisition – any other expenses incurred for executing sale. You can add the registration cost to your purchase price and claim deduction for computing capital gains. The indexation are notified values and you need to consider the same for the year you acquired the house and sale the house. Since the house/ plot was acquired before 2001, you can claim fair value as cost.

In case he does not want to invest in real estate, the other option is to buy specified bonds issued by National Highway Authority of India or Rural Electrification Corporation.  There is a lock in period of 5 years post investment in these bonds. This investment is to be made in 6 months of sale of asset.

Even if the money is transfered to you, your father is should first pay the capital gains tax and balance can be transferred to you.  The amount transferred to you will be an exempt gift and no tax is payable by you. But if you earn any income from that money, it will be taxable in your father’s hands.

Yes if your father sells two asset in two different years he can invest twice in the bonds.

Your understanding is correct.

Yes, this can be done.

Yes. You can do that

Yes, your understanding is correct.

Yes, your understanding is correct.

YEs , each sale will be independent and to save tax investments has to be made separately.