I bought a house in 2012 and sold it at a loss in 2021. The circle rate was higher than my selling price. Can I claim long term capital loss (LTCL) from sale of assets and set it against long term capital gain (LTCG) in stocks or other financial investments? How will the higher circle rate affect my losses? Can I set off the loss arising from the above sale against the sale of any other asset which is likely to attract LTCG tax? Can I invest the proceeds from the sale of the house in the capital market, as I do not have any long-term or short-term capital gains? What are the tax implications of selling a home property at a loss?
-prayer
We understand that the property sold by you was a residential house. Since you have held the asset for more than 24 months, the asset will be treated as a long-term capital asset and the loss arising from its sale will be taxed as Long-Term Capital Loss (LTCL) in your hands.
LTCL from the sale of such residential house shall be computed as the difference between the net sales proceeds (minus the brokerage expense from the sale) and the indexed cost of acquisition and improvement. In your case the indexed cost of acquisition of the asset would be calculated as the cost/cost inflation index (CII) of the year of acquisition * CII of the year of sale. (The CIIs fixed for FY 2012-13 and FY 2021-22 are 200 and 317 respectively).
Please note that if the actual sale consideration is less than the stamp duty value by more than 10%, then for the purpose of the above calculation, the stamp duty value will be treated as the sale consideration.
Accordingly, in your case, if the actual sale consideration is less than the Stamp Duty value by more than 10%, the Stamp Duty value will be treated as the sales consideration for the purpose of above calculation of LTCL.
If the calculation results in LTCG, then the resulting LTCG (net amount set off from eligible loss of any previous or current year) will be taxable in your hands at 20% (plus applicable surcharges and cess).
There is no restriction under income tax laws on investment of sale proceeds of house property in capital markets (stocks and mutual funds). However, if such investment is not made in a new residential house located in India, specified bonds or equity shares of an eligible startup, you may not be eligible to claim LTCG as exemption from tax.
In case of LTCL, it can be set off only against LTCG. Accordingly, if you take LTCL on the sale of this residential house, you will be eligible to set off such LTCL against any other LTCG during the year.
You can carry forward any unadjusted LTCL for the eight financial years immediately following the current financial year and set it against future LTCG.
It is to be noted that to enable you to pursue LTCL, you must mandatorily file your Income Tax Return (ITR) within the due date of filing the prescribed tax.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.
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