If a couple bought a flat in April 1998 for Rs12 lakh jointly (equal contribution), and sold it in March 2018 for Rs1.49 crore, how much capital gains tax will they have to pay individually? How can they save tax?
—Nandakumar Shriniwas Desai
Each co-owner is liable to pay tax on the capital gains arising from the sale of the flat, in proportion to the percentage of ownership. The ownership would need to be substantiated with legal documents (purchase deed) as well as respective source of funding the proportionate cost.
This property was held by them for more than 24 months before the sale, and hence the gains are taxable as LTCG, subject to tax at 20.60% plus applicable surcharge. LTCG is the difference between net sale proceeds (sale proceeds less brokerage expenses, if any) and the indexed cost of acquisition and improvement.
Since the property was acquired prior to 1 April 2001, they can treat its fair market value (FMV) as on 1 April 2001 as the cost of acquisition/improvement while computing capital gains, instead of the actual costs incurred to purchase/improve the property. Such FMV will be indexed using the Cost Inflation Index (CII) notified as on 1 April 2001 (CII for FY02 is 100) and the year of sale (CII for FY18 is 272), to determine the impact of inflation on the FMV.
If either or both the individuals don’t have any other source of income that is taxable in India, they will be liable to tax on the capital gains only to the extent such gains along with other taxable income exceed the income threshold not chargeable to tax (Rs2.5 lakh for FY18 for an individual taxpayer, who is not a senior citizen).
An exemption (capped to Rs50 lakh) can be claimed by each co-owner by reinvesting their shares of LTCG in specified bonds notified by the central government within six months from the sale of the property, as per Section 54EC of the Income-tax Act, 1961. The notified bonds are redeemable only after five years from the date of investment. Exemption may also be claimed by each owner by reinvesting the respective share of LTCG in one residential property in India within the specified timelines and satisfaction of other conditions (including that of temporary investing of funds in Capital Gains Account Scheme, if necessary). In case the calculation results in a long-term capital loss (LTCL), the same can be set off against any other LTCG of the said FY (i.e. FY18). In case there is no such other LTCG or insufficient LTCG, the balance LTCL can be carried forward for 8 years for set off against any LTCG of those years.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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