Tax on gains from sale of ancestral property

Hi Amit,

 

Thanks for your detailed query. Here's a clear breakdown of how to approach the capital gains tax implications for the sale of the co-owned ancestral property:

 

🔹 Key Facts Recap:

 

Original ancestral property redeveloped in 1990, with an apartment received in lieu of land (no cash).

 

2014: Your family bought out the aunt's share, and property was transferred to Mother, Son A (NRI now), and Son B.

 

2024: Property sold at market value. Buyer filed Form 26QB, implying TDS under Section 194-IA (likely 1% TDS).

 

Proceeds deposited with Mother, as her retirement corpus.

 

At the time of sale: Mother & Son B = Residents, Son A = NRI.

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1. Who Should Report Capital Gains in Tax Return?

 

Since the property is jointly owned by Mother, Son A, and Son B, each co-owner must report their respective share of the capital gain in their individual ITRs, regardless of where the sale proceeds are deposited.

 

- The deposit of money in the Mother's account does not shift the ownership or tax liability unless there was a prior legal gift or transfer of share (which should be documented legally).

So:

Mother: Must declare her 1/3rd capital gain in her ITR.

 

Son A (NRI): Must declare his 1/3rd capital gain in his ITR (Indian income).

 

Son B: Same as above.

> Note for Son A: Since he’s an NRI, he should file an ITR in India for this transaction and cannot avoid tax filing even if the funds didn’t reach his bank account.

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2. How to Calculate Capital Gains?

 

Let’s break it into parts:

Step-by-Step Capital Gains Computation:

A. Cost of Acquisition:

Since the property was received as a result of redevelopment in 1990, and the original property was ancestral, you are allowed to take the cost of acquisition from the previous owner (likely your grandfather).

For tax purposes, you can consider Fair Market Value (FMV) as on 1st April 2001 as your base cost.

 

B. Add: Cost of improvements (if any) after 2001 till sale.

 

C. Sale Consideration:

Total sale value received in 2024.

 

D. Indexation Benefit:

Yes, indexation benefit is available, since this is long-term capital asset (held for > 24 months).

 

Use Cost Inflation Index (CII):

 

FY 2001–02: CII = 100

 

FY 2024–25: CII = 348 (provisional)

 

E. Capital Gains = Sale Price – Indexed Cost of Acquisition – Indexed Cost of Improvement – Transfer Costs

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✅ Example (for illustration):

 

Let’s say FMV as on 1-Apr-2001 was ₹15,00,000

Sale value in 2024: ₹1.50 Cr

Indexed cost = ₹15L × (348/100) = ₹52.20L

Capital Gain = ₹1.50 Cr – ₹52.20L = ₹97.80L

Each co-owner’s share: ₹32.60L (1/3rd)

 

This ₹32.60L will be declared in each co-owner’s ITR.

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3. Special Notes:

 

🔹 For Son A (NRI):

 

His share of capital gains is taxable in India, and TDS under Section 195 (20%+ surcharge+cess) should have ideally been deducted by buyer.

 

But since Form 26QB (typically for resident sellers) was used, this may be incorrect for Son A. A correction or rectification may be required in TDS return.

 

Still, Son A should file return and pay any balance tax (if applicable), or claim refund if excess TDS deducted.

 

 

🔹 Reinvestment Options:

 

Mother can invest in another residential house under Section 54, if she chooses, to claim exemption on her 1/3rd share of capital gains.

 

Son A and Son B can explore Section 54EC (bonds) if they wish to reduce their tax liability.

 

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Thanks

Warm regards,

Damini

Team Witcorp – Simplifying Tax & Compliance

 

1. Who Should File Capital Gains?

All three co-owners — Mother, Son A (NRI), and Son B — must report 1/3rd share of capital gains in their own Income Tax Returns (ITR).

The fact that sale proceeds are in Mother’s account does not change the tax liability unless ownership was legally transferred before sale.

2. Capital Gains Calculation & Indexation

• Use Fair Market Value (FMV) as on 1 April 2001 as Cost of Acquisition (since property was ancestral/redeveloped).

• Apply Cost Inflation Index (CII):
  FY 2001–02 = 100
  FY 2024–25 = 348 (Provisional)

Indexed Cost = FMV × (348 ÷ 100)
Capital Gain = Sale Value – Indexed Cost – Transfer Costs

Yes, indexation benefit is available as it’s a long-term capital asset.

Important Notes:

• Son A (NRI) must file ITR in India and pay tax on his share.

• Form 26QB is not valid for NRIs. Ideally, buyer should have used Form 27Q with 20%+ TDS under Sec 195.

• Mother may claim Section 54 exemption if reinvesting; others can explore Section 54EC bonds.

- Father share was inherited by all three in equal share. Capital gain would be calculated in the hands of all legal heirs

- What was the percentage of investment by each co-owner (i.e. Mother, Son A and Son B) in the aunt share?

- Cost of acquisition for father share would be SDV as on 01.04.2001 and for aunt share, the actual cost paid to her

- Buyer was liable to deduct TDS in the hands of all co-owners

 

 

For detailed discussion you may opt for phone consultation

[A] Builder’s sale price from 1990 is not acceptable to determine cost of acquisition (too old, not as of 1-Apr-2001).

[B] Neighbourhood resale data from April 2001 can be used as supporting evidence, but not sufficient alone.

Correct method: Get a Registered Valuer’s Report certifying Fair Market Value (FMV) as of 1-April-2001 — this is legally valid for capital gains calculation.