Tax matters: Use previous owner's price

Q  I have received a flat from my mother in form of a settlement deed given out of natural love and affection. She had acquired the property several years back for about '10 lakh. At the time of registering the settlement deed, the value was indicated as '68.26 lakh.

Could you please advise whether I am liable for capital gains tax? If so, what would be the tax I have to pay? Could there be any exemptions to the tax? If I decide to sell this flat at '95 lakh, what would be the scenario as far as the capital gains is concerned? Can I show the property in my balance sheet for income-tax returns for FY2018-19?

Shobit Raj
Via email

A) According to Section 49, if the assessee has acquired an asset by certain specified modes such as gift, will, partition of HUF, inheritance etc., the cost to the previous owner will be adopted as the cost of acquisition. In your case, the cost of acquisition to your mother has to be considered for the purpose of arriving at the long term capital gains. The date of acquisition by your mother is not mentioned. If the flat is acquired by the assessee before April 1, 2001, the fair market value as on April 1, 2001, can be adopted as the cost of acquisition, at the option of the assessee. You will also be eligible to claim the benefit of indexation by applying the cost of inflation index to the cost of purchase of property i.e. '10 lakh or fair market value as on April 1, 2001, if purchased before that date. Your capital gains tax liability shall be 20.8 per cent on long term capital gains.

The capital gains tax liability can be avoided or reduced by generally investing the LTCG in -

Purchase of residential house within one year before or two years after the date of transfer or by constructing a residential house within 3 years from the date of transfer. or

Capital Gain Bonds specified under Section 54 EC of the Income-Tax Act within six months from the date of sale of the asset.

If you are the owner of an asset on the date of preparing the balance sheet, the same may be duly reflected.

(The writer is a Hyderabad-based CA. He can be reached at info@rathiandmalani.com)

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