I am a Hindu male and own a 3BHK joint property with my father where they live. My father has another 1BHK property in his name where I live. We want to sell 1BHK property as a big house owner. In the end, my father and I want to own different properties in different names. What are the tax implications if I get a gift of 100% share in 1BHK house from my father and in return gives me his combined 50% share. Stake in 3BHK house? If after becoming 100% owner of a 1BHK home, I sell the property to upgrade to a bigger flat, what are the capital gains implications? All properties are in Mumbai.
—Name withheld on request
We have assumed that the 1BHK property owned by your father is a residential house property, and it was acquired after 1st April 2001 and is with him for more than 24 months.
Since the gift will be given by a specified relative, the transaction of the gift will not have any tax implications in the hands of you or your father. Accordingly, when 100% share in 1BHK property is gifted to you by your father and when 50% share in 3BHK property is gifted by you to your father, there will be no tax implication in the hands of you or your father . Please note that the obligation to prove that the said transactions are independent and in the nature of gift lies with the taxpayer.
Generally, gift of an immovable property can be effected by a registered gift deed with payment of applicable stamp duty.
Thereafter, when you sell a 1BHK property, as it will be held for more than 24 months prior to such sale, the said asset will qualify as a long-term capital asset. The consequential gain/loss arising from the sale of the said asset will be taxable as Long Term Capital Gain/Loss (LTCG/L) in your hands. LTCG/L is calculated as the difference between net sales return and indexed cost of acquisition (ICOA) and improvement.
Since the house property has been transferred by gift, the cost of acquisition for you will be the cost of the original owner. In your case the indexed cost of acquisition of the asset would be calculated as the cost of acquisition/Cost Inflation Index (CII) of the year of acquisition * CII of the year of sale. (CII scheduled for FY 2021-22 is 317). Further, if the actual sale consideration is less than the stamp duty value by more than 10%, the stamp duty value for the purpose of computing such LTCG/L shall be treated as the sale consideration. The resulting LTCG is taxed by you at the rate of 20%. Rollover exemption on the resulting LTCG is available for the following investments, subject to stipulated conditions and timelines:
• By investing LTCG in a new residential house, under section 54 of the Act;
• By investing LTCG in specified notified bonds, under section 54EC of the Act; And
• By investing the net return in equity shares of eligible startups, under section 54GB of the Act.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.
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