My fathers brother willed his property to mother
2 months ago
My fathers brother willed his property to mother . She gave it to my father vide an affidavit . Thereafter , my father got the property transferred to his name . All brothers and sister signed the affidavit. Now, my father sold the property and transferred the amount to me . I purchased a property in my name with the money . Would my father have to pay capital tax ?
A.Dear Client,
Profits from selling of immovable properties like residential property after 24 months qualify as long-term capital gains (LTCG) and are taxed @ 20%. If the property is sold within 24 months, it falls under short-term capital gains (STCG) and is taxed based on the individual's tax slab. The Seller has to buy only residential property to save tax on capital gains arising out of the sale of that property. Section 54 of the Income Tax Act, 1961 offers tax exemption on LTCG if the following conditions are met: 1} A new residential property is purchased within one year in case of under-construction property or within two years (ready to move in) after the sale of the previous housing property. 2) The construction of the under-construction housing property must be completed within three years of the sale of the previous housing property. 3) If the total cost of the new residential property is more than the capital gains, then the entire capital gains are tax-exempt. This exemption is applicable if the capital gains are reinvested by the Seller into purchasing another residential property in his name. So, when your father sold his property and bought a property from the sale proceeds of earlier property in others' name instead of his own name, he had to pay tax on long-term capital gains. It would have been better if your father had mentioned his name as co-owner to claim exemption under Sec.54 of the Act. Now also he can claim exemption but is subject to litigation. It is advisable to consult with a Chartered Accountant(CA) for more clarification and guidance.
Profits from selling of immovable properties like residential property after 24 months qualify as long-term capital gains (LTCG) and are taxed @ 20%. If the property is sold within 24 months, it falls under short-term capital gains (STCG) and is taxed based on the individual's tax slab. The Seller has to buy only residential property to save tax on capital gains arising out of the sale of that property. Section 54 of the Income Tax Act, 1961 offers tax exemption on LTCG if the following conditions are met: 1} A new residential property is purchased within one year in case of under-construction property or within two years (ready to move in) after the sale of the previous housing property. 2) The construction of the under-construction housing property must be completed within three years of the sale of the previous housing property. 3) If the total cost of the new residential property is more than the capital gains, then the entire capital gains are tax-exempt. This exemption is applicable if the capital gains are reinvested by the Seller into purchasing another residential property in his name. So, when your father sold his property and bought a property from the sale proceeds of earlier property in others' name instead of his own name, he had to pay tax on long-term capital gains. It would have been better if your father had mentioned his name as co-owner to claim exemption under Sec.54 of the Act. Now also he can claim exemption but is subject to litigation. It is advisable to consult with a Chartered Accountant(CA) for more clarification and guidance.
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