My father owned a residential flat which was given to my mother under his will. We transferred that flat in my mother’s name after her death in 2017. She also owns another flat bought in 2020, on which the home loan is going on. My mother wants to sell the inherited flat and repay the ongoing home loan on the new flat. Can she do this to claim capital gains exemption or does she need to buy a new asset to claim exemption. Can she gift some of the money received from the sale of the flat to her daughter? The inherited flat was purchased in 1987 for Rs. 5 lakhs which will now fetch 50 lakhs. I want to know the long term capital gain tax liability.
A residential house that is sold after holding it for more than two years is treated as a long-term capital asset and the gain on sale of such house is treated as a long-term capital gain. Tax at 20% has to be paid on such long-term capital gains computed after applying indexation to the cost. The taxpayer can claim exemption against this long-term capital gains tax liability either by investing such indexed capital gains in a residential house or by investing indexed capital gains in capital gains bonds of certain specified financial institutions within the prescribed time period. By doing
Exemption from long term capital gains is not available in respect of repayment of home loan. You can claim deduction under section 80C for repayment of home loan 1.5 lakh every year along with other eligible items up to a limit of Rs. Hence your mother will not be able to claim any tax exemption in respect of long term capital gains tax liability by repaying the existing home loan. To claim the exemption, your mother has to either invest the capital gains in a residential house or in capital gains bonds. If she does not want to do either of these two things, then she will have to pay 20% tax on Indexed Long Term Capital Gains.
As far as gifting some part of money to your daughter is concerned, she can gift any amount to her daughter and there is no restriction on it.
For computing the long-term capital gains liability in respect of the sale of the inherited house, your mother has the option of taking the Fair Market Value (FMV) as on April 1, 2001, as its cost. Indexation is to be applied on FMV. So to calculate your long term capital gains liability we need the FMV of the house as on 1st April 2001 which you can get from a registered valuer. The FMV valuation obtained from the valuer cannot exceed the stamp duty valuation as on 1st April 2001.
Can I buy two residential properties jointly with my children from the sale of a single residential property to claim exemption from long term capital gains? A property was bought just 1 month ago One for sale and the other is planned to be bought using the entire sale proceeds within 2 years from the date of sale. If not, please guide me as to how I should proceed with a view to ensure that in the event of my death, the benefits can be passed on to my son and daughter without any income tax implications for me or my children.
To avail exemption for long-term capital gains arising on sale of a residential house, you need to invest only the indexed capital gains from the sale of the existing house property and not the entire sale consideration. To claim exemption under section 54 Investment Investment has to be made in only one house and if investment is made in more than one house then you have to select the house in respect of which you want to claim exemption.
However as per various judicial pronouncements, if more than one flat is used as a unit such as adjacent flat or duplex in the same building, the benefit under section 54 is also eligible for investment made in more than one flat. claim can be made. There is no bar on you buying a new property in the joint name of yourself and your son or daughter to claim exemption under section 54. The essential is that you should invest the required long term capital gains in the house. Your son or daughter can be made a joint owner in the agreement even if they do not invest any money in the property. If the entire capital gain cannot be invested to buy a house, you can invest up to Rs. 50 lakh in capital gains bonds of specified financial institutions within six months from the date of sale of the house. To ensure that your son and daughter get the property easily after your death, please prepare a Will specifying the share of your son and daughter in all your properties, movable or immovable. Your son or daughter will not have to pay any tax at the time of inheritance of the property, but may have to pay tax when the property is sold.
I am 34 years old and working in private sector. I have 3 year old daughter. I am planning to invest in a child plan of an insurance company where the money is returned in installments on different dates to take care of his education and marriage needs. Please advise should I buy child plan, if not please suggest me where should I invest the money?,
As a prudent personal financial principle one should never mix insurance and investment needs by purchasing a single product to meet both such needs. I would not recommend you to buy any insurance plan as an investment option for your daughter’s education and marriage goals, as these insurance products are loaded with high non-refundable charges. Just because a product has the word “child” in its name, does not mean it is an appropriate product for your child. Instead I would suggest you to buy enough duration. InsuranceInvest in mutual funds, preferably online and through monthly SIPs in equity mutual funds. As far as the amount of life insurance cover required for this purpose is concerned, you will have to estimate your Future Target value at the time of her education and marriage keeping inflation in mind. Considering the fact that your goal is at least 15-18 years away, you should invest monthly through SIP route in N.ifty 50 or Sensex Fund. If you are not comfortable investing in equity, you can open an account in the name of your daughter under Sukanya Samriddhi Yojana which offers you a higher rate of interest and tax benefits That too under section 80C.
term plan If you are not around then you will take care of her education and marriage needs. The combination of term plan and monthly SIP/deposit in Sukanya Samriddhi Yojana will surely beat the amount that you would get under any child plan. Consult a certified financial planner to make a proper financial plan for all your goals.
Balwant Jain is a tax and investment expert and can be reached on his Twitter handles at jainbalwant@gmail.com and @jainbalwant.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.