I am a salaried person having undivided inherited property of my deceased father and mother. Now, the legal heirs of my deceased elder brother and I are dividing the property among us.

Once I get the partition deed registered in my name, I plan to sell it, distribute some of the sale amount to my sisters and retain some for myself. What are the tax implications for me?

Can I add this sale amount retained by me to my salary income and, accordingly, arrive at the tax payable? Please advise me on the best way to reduce tax burden.

Prasad K B

As per the provisions of Income-tax Act, 1961 (‘the Act’), registration of the partition deed for the property inherited from your father and mother will not have any tax implications in the hands of the recipient. Taxability shall arise only once the property is sold.

Any gains arising from transfer of capital asset (inherited property in this case) is chargeable to income tax under the head ‘capital gains’.

The cost of acquisition for the property shall be the cost at which the previous owner (in this case your father and mother) had acquired the property.

I understand that as per the partition deed, the property has been bequeathed to only you and your brother and you will be selling your share of the property.

Any capital gains on sale of your share of property shall be taxable in your hands irrespective of the fact that you will distribute some of the sale proceeds to your sisters. The amount received by your sisters shall be considered as a gift from you and will be considered as exempt in their hands.

Further, the property shall be considered a long term capital assets (LTCA) provided it is held for more than 24 months before sale (period of holding shall also include the period for which property was held by your parents).

In such a case, you would be entitled for the indexation benefit for cost inflation while computing the cost of acquisition (and thus capital gains on the same). In case the property is purchased before 2001, the indexed cost of acquisition shall be the fair market value as on April 1, 2001 as adjusted for the cost inflation index. The LTCA, if any, arising from the sale of property shall be taxable at 20 per cent.

You may claim the exemption of the said capital gain by investing the gain amount in another residential house property or in the specified bonds (subject to certain conditions/time period).

As mentioned above, the sale of property shall be chargeable as capital gains and is not taxable at the applicable tax slab rates (as applicable for salary/other applicable incomes).

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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