There are 14 legal heirs to my grandfather’s residential property. Twelve of them will waive their rights to the property. Instead, those rights will be passed on the son of my late uncle and me. To facilitate this transfer, we will each make a payment to the other heirs and then sell the property. We need guidance on calculating the taxes applicable to our situation.
—Sannat Chaudhry
Any gain or loss arising from sale of such inherited property, shall be chargeable to tax as ‘capital gain/ loss’ in your hands in the year of sale. Where the property (or any share therein) has been held for more than 24 months prior to sale, the same will be considered as a long-term capital asset and any gain / loss arising from its sale shall be considered as long-term capital gain/loss (LTCG/ LTCL). Else, the same shall be considered as short-term capital asset and resultant gain/loss shall be considered as short-term capital gain/loss (STCG/ STCL).
You and the co-inheritor are each receiving 1/14th share in the property as inheritance and 6/14th share as acquired from other legal heirs. Thus, the capital gain shall be calculated as follows:
For the 1/14th share each inherited by you and co-inheritor: the tenure for which the property was held by your grandfather shall be considered for calculating the period of holding of such inherited share in the property. On an assumption that the property is a long-term capital asset, LTCG will be calculated as the difference between the sale consideration (as prescribed) reduced by indexed cost of acquisition and improvement and any expenses directly incurred for acquisition of such property.
For this purpose, cost of acquisition shall be the actual cost in the hands of your grandfather. In case the property was acquired prior to 1 April 2001, then fair market value of the property as on 1 April 2001 or the original cost of acquisition and improvement, as per option of taxpayer, shall be considered for the purpose of computing capital gains.
LTCG is taxed at the rate of 20%, plus applicable surcharge and cess.
Further, in case of LTCG from sale of residential property (or any share therein), exemptions under section 54 (reinvestment in another residential house property) or 54EC (purchase of specified bonds) may be availed by both of you for your respective shares, subject to investment in specified assets and fulfilment of all relevant conditions.
For the 6/14th share acquired from the other legal heirs by you and co-inheritor: the date of acquisition is to be considered as date of purchase from other legal heirs. The cost of acquisition would be the amount payable to the legal heirs for its acquisition.
In case the respective share in the property was held (i.e. from date of acquisition from other legal heirs to date of actual sale of full property) for more than 24 months, it would be considered as a long term capital asset and LTCG will be calculated as discussed above, for such respective share.
In case the respective share in the property qualifies as short-term capital asset, then STCG, if any, arising upon sale of such share in the property, shall be taxable at slab rates applicable for you and the co-inheritor, plus applicable surcharge and cess.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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Published: 28 Jan 2024, 09:29 PM IST