Long time capital gains tax on immovable property

Hi

1. The arrangement is fine. But, at the time of registering the gift deed, stamp duty shall have to be paid which would be an additional cost.

2. No.

3. Yes, the owner may claim capital gain exemption by way of reinvestment into another residential house property.

4. Yes.

The taxation, transfer and gift can be planned taking into consideration the ultimate objectives of all 4 of you. If reinvestment is the objective, the property should be sold in your mother's name only (no gift transaction). Your mother may then invest in a new house property in your joint ownerships.

We may discuss the issues further.

Since property will be sold in Oct 20, reporting has to be done in ITR for FY 20-21 which will be done by 31 July 2021.

No reporting in ITR for FY 19-20.

Exemption shall be available. It is a residential house property that would be sold, so section 54 would be applicable. Under section 54, there is no restriction on holding no. Of house properties.

Hello,

1. Yes, it is fine. Executing and registering the gift deed would be an additional cost.

2. No. In the case of gift of property, the period of holding of previous is also considered

3. Yes, the exemption would be available.

4. Yes.

Rather than dividing the ownership through gifting the property, the property can be sold in your mother's name only and for exemption, your mother can invest the capital gain amount in the name of her children. The exemption would still be available to her.

I hope this answer satisfies your requirements. 

Regards,

CA Hunny Badlani

The property sold in OCT/NOV 2020 would be declared in the income tax return for F.Y. 2020-21 and that would be filed after the F.Y. ends.

There is no restriction on the Number of house properties in case of exemption u/s. 54.

Further, another option available for exemption is the investment in specified bonds within a period of six months from the date of sale u/s. 54EC.

Hi,

I would recommend following in place of the arrnagement proposed to make it more tax effective, cost effective (Stamp duty implication + Legal documentation) and simplified for the records and assessment

Sell the Property directly in the name of mother if its owned solely.

anyway on account of proeprty is purchased from 1988 you can have fresh valuation of property in 2001 and accordingly claim indexation benefit.

After netting of indexation benefit offer it for tax under 20% rate which is minimum tax rate as compare to general tax rates.

And than from sales proceedings she can distribute the amount to her children as gift deed.

After receipt of actual figures can give you more accurate benefit in the proposal proposed but i am sure this will turnout to be more cost effective and less compliant for the benefit. 

Hi

1. Yes you can do so. 

2. No

3.  Yes you can still get exemption.

4. Yes 

5. We can discuss same over the call

Hi

This will be reported in ITR for the year 2020 - 21 no need to show in ITR for the year 2019- 20

Hi

Yes you can get exemption. For exemption under section there is no limit for number of house property.

You can also get exemption under section 54 EC. Section 54EC of the Income Tax Act, 1961 lays down the provision that capital gains are exempt from tax, if the long-term capital gains are invested in specified investment instruments within a pre-defined time period. ... Exemptions under Section 54EC are only available on gains from transfer of long-term capital assets.

Hi,

Ans:-1 The Reply to your Question is as follow:-

1.) Your arrangement is legally valid. You have to include this value in your Income Tax return as exempted income.

2.) There is no lock in period as such to be maintained after the gift deed is executed and before the sale of the house also.

3.) The Capital Gain exemption is only allowed in case of Sale of Long Term Capital Asset. To qualify as a long term capital asset we need to check the period of holding and Explanation 1(b) to section 2(42A) of Income Tax Act, 1961 provides answer to the above situation. It says that in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in sub-section (1)]of section 49[ie in case of gift or inheritance or liquidation of a company or under irrevocable trust], there shall be included the period for which the asset was held by the previous owner referred to in the said section. So in your case even if after gift you sell the asset same day then also you are eligible for exemption.

Further, You can claim the exemption under Section 54 of Income Tax Act,1961 by investing in another residential house property and with effect from A.Y. 20-21 the benefit of exemption is extended if it is made in two residential property instead of one earlier. Also Important to note here is that exemption is only available if the Long term Capital Gain does not exceed ₹2 crores.

4.) Yes, the sale agreement will be in the name of all four sellers who will be presently holding that residential house since, only then the house will be transferred fully.

5.) Conclusion:- You can sell the Residential house after executing gift deed even same day after transfer and Long term Capital Gain will arise after indexation benefit to you(Please reach out if you help in calculation, since it can be only done after having values in hand).

Ans:-2 in case of sale oh house in Oct/Nov in 2020-21, this transaction is to reported in Income tax return filed for the A.Y. 2021-22 i.e. FY 2020-21 and not in A.Y. 2020-21 i.e. FY 2019-20

After  division of house property you all can take benefit u/s 54 buy investing LTCG in  new residential house separately for all of you  your arrangement is good no need of any lock in period can sell immediately  if you sell during FY 20-21 then can invest till due date of ITR filing which wll be 31 July 2021

Dear Sir,

Hope you are doing well !!

1. Yes, it is fine.

2.No.

3.Yes.

4.Yes.

5. It is advisable to take a phone consultation for detailed discussion.

The same would be declared in the income tax return for F.Y. 2020-21.

There is no restriction on the number of house properties in case of exemption u/s. 54.

Yes from the point of view of tax planning it looks good, you'll only have to incur cost of stamp duty twice that's the only minus point.

No there is no minimum period legally but this can alert the taxman for tax planning or may be evasion of tax.

Didn't get your 3rd question.

Yes all 4 of you need to sign the sale deed of the building later.

After this transaction all of you can invest individually in any ways you want.

You'll have to get the FMV of the building for 01.04.2001 as your mother had the property before 01.04.2001 when you sale to outside purchaser since you all got property in gift.

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

Thank you.

The transaction will be done in FY 2020-21 so you need to show it in ITR to be filed on 31.07.2021

You can save tax by even investinng in Bonds u/s 54EC upto 50 lakh within 6 months of sale.