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My sister and I have inherited a house from our deceased parents, who died in 2007 and 2012. The house was constructed in 1982. My sister wants to sell the house quickly and emigrate to Canada.
She had acquired Canadian citizenship in 2005-06. But after staying there for some years, she came back to live in India. But now, she wants to go and settle down there forever.
What would be our obligations under tax laws on this property? What will my additional obligation be if I buy her share of property? What is the best way to minimise tax?
Kavita Paul
You and your sister are joint owners with equal share in the inherited property. If the property is sold to a third party, then the gain on such sale would be taxable as capital gains in each of your hands in proportion to your share in the property. Since the period of holding of the property, including the period in which the original owner held the property exceeds 24 months, gains arising on sale would be regarded as long term capital gain.
LTCG is the excess of sale proceeds after deducting related expenses over the indexed cost of acquisition of the property. The cost of acquisition would be determined based on the fair value of the property as on April 1, 2001.
The indexed cost of acquisition is calculated as: fair value x cost inflation index during the year of sale/cost inflation index during FY 2001-02 which is 100.
If you choose to buy your sister’s share of property, your sister will be liable for LTCG. Also, if the sale consideration is ₹50 lakh or more, you would be liable to deduct tax on the entire sale consideration. The TDS rate would be 1 per cent if your sister is a resident as per the Income Tax Act during the year in which the sale happens, else TDS rate under Section 195 of the Act would be applicable.
In addition to the above, in case of transfer of property, if the sale consideration is less than the stamp duty value, then the latter would be regarded as the sale value as per Section 50C of the Income Tax Act and LTCG will be calculated accordingly.
LTCG arising on the sale of house property is exempt if the gain is invested in another house property, subject to certain conditions. Alternatively, exemption on LTCG is also available if the proceeds are invested in specified bonds issued by National Highway Authority of India, Rural Electrification Corporation of India, etc.
The writer is Partner, Deloitte Haskins & Sells LLP. Send your queries to taxtalk@thehindu.co.in
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