My father bought a property for 1 crore in July 2008 and gifted to me in May 2014 after paying the required stamp duty. property was sold for 14 crore in November 2021. I want to know how Long Term Capital Gains (LTCG) tax will be applicable in this case? Also, how will the tax be calculated if 70% or 90% of the capital gain is invested in a new asset? Can I invest in the property which will be handed over to me in March 2025?
—Name withheld on request
Since the asset has been held for more than two years (counting the period calculated from the date of purchase of the asset by the owner, who has actually acquired the asset), any capital gain made on it will be treated as LTCG. If the actual sale consideration is less than the stamp duty value by more than 10%, the stamp duty value is treated as the sale consideration.
You are eligible for the benefit of Adjustment of Cost of Acquisition (‘COA’) based on the Cost Inflation Index (‘CII’) applicable for the financial year 2008-09. In addition, the stamp duty duty paid at the time of gifting will also be part of the COA, and the CII will be applicable for FY 2014-15.
LTCG income is taxed at a uniform rate of 20% with applicable surcharge (limited to 15% on LTCG) and education cess. If your taxable income (other than LTCG) is below 2.5 lakh (tax exemption limit for persons up to 60 years of age), the benefit of unrestricted exemption limit will be allowed against LTCG and the remaining profit will be taxed at 20%.
Under section 54, LTCG deduction is allowed from the sale of a residential house if the profit is invested to buy another residential house (‘new house’) either within one year before or within two years or within three years. Investments are made to build a new house. house transfer. Deduction is available to the extent of LTCG investment. If the amount of LTCG exceeds the cost of the new house purchased or built, then the difference between the amount of LTCG and the cost of the new house (i.e. 30% and 10% respectively in your case) will be taxable in the year. sell as ltcg
If you are unable to buy/construct a new house by the date of filing of Income Return for FY 2021-22 (due date is 31st July), the unutilized LTCG (in whole or in part) may be credited to Capital could. Profit Deposit Account Scheme with a specified bank and claim exemption under section 54 of the Act. The new house can be bought or built by withdrawing the amount from the account within a specified time frame of 2 or 3 years, as applicable.
We understand that you are planning to invest in an under construction property which is expected to be occupied in March 2025. Some courts have held that completing the construction of the home or its business is not a prescribed requirement and as long as the LTCG has been invested. Exemption in construction of residential house within three years should be available to that extent.
Another school of thought is that the property should have been fully constructed and ready for use within a stipulated period of three years. As the law requires investment in residential property, in case of under construction property, residential property comes into existence only on the date of completion of construction/possession, which should be done in tjree years to transfer.
In view of the above, there is a situation that investment in an under construction property (even if the construction is not completed), can be highly controversial, especially where the assessee knows at the time of investment itself that the construction may take more than 3 years.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.