My three siblings and I inherited an apartment from my father after his death. Since both our parents are no more, we intend to sell this flat and distribute the money among the four of us. Is there a way to avoid tax on this? It is not written anywhere in my father’s will that it’s a gift.
—Manasi Kadane
We understand that your query is in relation to a residential house property inherited by you along with your three siblings.
Any gain or loss arising from sale of such inherited property shall be chargeable to tax as capital gain or loss for all of you in the year of sale.
As there is no specific gift deed nor any specific ratio specified in the will, the gain on sale of such property jointly inherited by you and your siblings should be taxable in equal proportion (subject to review of the actual documents).
Where the property 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 or loss arising from its sale shall be considered as long-term capital gain (LTCG) or long-term capital loss (LTCL). Else, the same shall be considered short-term capital asset and any gain or loss arising from its sale shall be considered as short-term capital gain (STCG) or short-term capital loss (STCL).
For calculating the period of holding of such inherited property, the tenure for which the property was held by your father (being the previous owner), shall also be considered.
The capital gains or loss will be calculated as the difference between the sale consideration and cost of acquisition and improvement. Cost of acquisition shall be the actual cost of the property in the hands of previous owner as increased by any cost of improvement if any.
In case of LTCG, benefit of indexation for cost inflation shall also be available. In case the property was acquired by your father before 1 April 2001, then the fair market value of the property as on 1 April 2001 or the actual purchase cost, whichever is higher, shall be considered as cost of acquisition for the purpose of computation of income.
In case of LTCG, the same shall be taxable at 20%, plus applicable surcharge and cess. If it i s STCG, the same shall be taxable at applicable slab rates of respective individuals, plus applicable surcharge and cess.
In case of LTCG from sale of residential property, following exemptions may be availed by an individual taxpayer, towards investment in specified assets and fulfilment of all relevant conditions:
Under section 54 of the Act: By investing the LTCG in purchase or construction of a new residential house situated in India. Additional conditions related to period of investment, amount of investment, number of properties already held, sale of new asset, etc. need to be complied with.
Under section 54EC of the Act: By investing the LTCG in specified notified bonds (up to a maximum of ₹50 lakh). Additional conditions related to the type of asset, period of investment, amount of investment, sale of new asset, etc. have to be complied with.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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Updated: 15 Oct 2023, 10:35 PM IST