My father and I collectively personal a residential flat in Mumbai. The flat was bought by my father in 2009, whereas I used to be nonetheless finding out and I had no supply of earnings. We now want to promote the flat and need to know the tax implications on every of us.
I even have a few different questions.
1. Can I present all the proceeds of the sale as my earnings below long-term capital positive aspects (LTCG?) If not, what’s the most quantity I can present as my earnings?
2. My father had already invested ₹25 lakh in 54EC bonds from the sale of one other property in 2018, which can mature in 2023. Can he make investments any taxable earnings arising from the sale of this property in 54EC bonds once more this yr?
—Title withheld on request
The idea of apportionment of capital positive aspects within the arms of the co-owners, the place the share just isn’t outlined, has not been particularly prescribed within the Revenue Tax Act, 1961 (the Act). The identical might due to this fact be thought-about foundation normal interpretation of legislation and varied judicial precedents on this regard. Additionally, whereas there are conflicting judicial precedents on this regard contemplating the varied property preparations, steering might be drawn therefrom.
Typically, every co-owner must be liable to pay tax on the capital positive aspects arising from the sale of the property, in proportion to the share of their respective funding within the property, except there are circumstances to justify in any other case (e.g., present and so forth.). This might have to be substantiated with authorized paperwork (buy deed) in addition to respective supply of funding and the proportionate price.
Within the on the spot case, as all the funding was performed by your father and presuming there isn’t a particular act of the property being gifted to you by your father, all the capital achieve ought to accordingly be provided to tax in his India tax return.
Additional, because the residential flat was held for greater than 24 months, the asset shall be thought-about as a long-term capital asset and the positive aspects can be taxable as long-term capital positive aspects (LTCG).
LTCG on sale of residential flat might be computed because the distinction between internet sale proceeds (sale proceeds much less brokerage bills) and the listed price of acquisition.
The listed price of acquisition of the asset in your case can be calculated as price of acquisition / price inflation index (CII) of yr of acquisition (CII for FY09 is 137 and for FY10 is 148)* CII of yr of sale. (CII prescribed for FY22 is 317). The tax is payable at 20% (plus relevant surcharge and cess) on the ensuing LTCG. The mentioned LTCG can be totally taxed in your father’s arms.
Within the case of sale of a residential flat, an exemption might be sought in any of the next methods, topic to the prescribed situations and timelines:
• Beneath Part 54 of the Act, by investing the LTCG in a brand new residential home located in India.
• Beneath Part 54EC of the Act, by investing the LTCG in specified bonds.
• Beneath Part 54GB of the Act, by investing the web consideration in fairness shares of an eligible startup.
Additional, for the aim of claiming exemption below Part 54EC of the Act, an investments as much as ₹50 lakh might be made per monetary yr.
Parizad Sirwalla is companion and head, world mobility companies, tax, KPMG in India.
Supply: Live Mint