Skip to main content

TAXATION on Selling inherited property

Calculation of the tax liability is complicated. Even tax officers grapple with it

Section (47iii) of the Income Tax Act states that any transfer of a capital asset under a gift or a will does not attract capital gains tax. In other words, my friend will not have to pay capital gains tax on the inherited house.

However, problems arose in the second leg of the transaction - when the flat was sold. Typically, if the inheritor were to eventually sell the property, the cost and the date of acquisition for capital gains purposes is to be taken as that of the 'the previous owner'.

Section 48 sets the cat amongst the pigeons. Explanation (iii) defines 'indexed cost of acquisition' to mean an amount which bears to the cost of acquisition the same proportion as the cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on the first day of April, 1981, whichever is later.

Simply put, for calculating longterm capital gains, you may use the higher of the indexed cost or the cost on April 1, 1981.

Explanation (iv) defines 'indexed cost of any improvement' to mean an amount which bears to the cost of improvement the same proportion as the cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the year in which the improvement to the asset took place.

ILLUSTRATION

My friend's father bought the house on July 6, 1983 for `1lakh. On July 6, 1986, he spent `2lakh for aroom. He passed away on July 6, 1990. The market value of the house then was `10 lakh. My friend sold the house on July 6, 2010 for `50 lakh. Let us first compute the indexed cost of the house. The market value of the house in 1990-91, the first year in which the asset first came into my friend's possession, was `10 lakh. This is of no consequence. His cost of acquisition, as per Section 47(iii), is `1lakh, (that his father paid in 1983-84). So, the date of acquisition would be July 6,1983.

The cost inflation index of 201011 is 711 and of 1983-84 is 116. Therefore, the indexed cost is 612,931 (100,000 x 711/116). But, there is an oversight.

The date of acquisition of the house for my friend is July 6,1983 but that is not clear. The index for the year in which my friend first held the asset is required to be taken for computation. The house came into my friend's possession in 199091 and the index for that year is 182. Therefore, the indexed cost is `390,659 (100,000 x 711/182) and not `612,931 as computed earlier.

Now, we need the indexed cost of improvement. If we extend the same principle here, we will be making a mistake. Re-examine the Explanation (iv) to get a clearer picture. It will tell you, unlike previously, the index to be considered is that of 1986-87, the year in which the improvement of `200,000 was carried out. The index for 1986-87 is 140 and the indexed cost is `10,15,714 (200,000 x711/140).

Ergo, the total indexed cost is 14,06,373 (390,659 + 10,15,714). If you are confused, do not worry. Anyone would be, including the income tax officers. Meanwhile, it is the hapless taxpayers who suffer

Popular posts from this blog

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com

HDFC Capital Protection Oriented Fund – Series II 36M May 2014 NFO

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300     HDFC Capital Protection Oriented Fund – Series II 36M May 2014 NFO will be open for subscription from 16th May 2014 to 30th May 2014. The key features of the scheme are as mentioned below:   Type of Scheme A Close Ended Capital Protection Oriented Income Scheme Benchmark Crisil MIP Blended Index Fund Manager Mr. Anil Bamboli , Mr. Vinay R Kulkarni & Mr. Rakesh Vyas New Fund Offer (NFO) Period 16 th May 2014 to 30 th May 2014. Minimum Application Amount Rs. 5000 and in multiples of Rs.10 thereafter Plans/ Options Offered Growth and Dividend Payout Facility Liquidity To be listed For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Indian Railways Seat Availability and Train Fare Enquiry

Enter the PNR for your train booking to find its status. Your 10 Digit PNR : Are you looking for Indian Railways Seat Availability information for trains between any two Indian Railway stations? Well, here is a detailed guide to find out seat availability and train fare information for journey between any two stations by any train on any chosen journey date. The holiday season is around and Indian all around are busy making Indian Railways Reservation .But before making the reservation, they would like to check berth availability information and here is a detailed step by step guide to check seat availability and train fare. How to check Indian Railways seat availability · 1. Go to the Indian Railways Passenger Reservation Enquiry page to check seat availability by clicking here [link] · 2. Enter the first few characters of the Originating Station against Source Station Name. For eg., if the origination station is chennai, enter "Che" against Sou

SBI Magnum Taxgain

Grown 37 times in 23 years- SBI Magnum Taxgain Scheme   Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGet Rich on 94 8300 8300 Leave your comment with mail ID and we will answer them OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com OR Call us on 94 8300 8300  

How to PPF Account extension after maturity

A PPF account can be retained after maturity without making any further deposits. The balance will continue to earn interest till it is closed. Public provident fund or PPF remains one of the most popular savings options for the long term despite a gradual decline in interest rates over the years. PPF accounts have a maturity period of 15 years and they can be extended. If there is no fund requirement, financial planners say, PPF account holders should extend the account beyond 15 years. In terms of income tax implications, PPF accounts enjoy the benefit of EEE (exempt-exempt-exempt) status . Under Section 80C, contribution up to Rs 1.5 lakh in a financial year qualifies for income tax deduction. The interest earned and maturity proceeds are also tax free. What are your options when a PPF account matures? 1) A PPF account can be closed after the expiry of 15 financial years from the end of the year in which the account was opened. 2) The subscriber can retain his
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now