A property held for over 24 months prior to the sale qualifies as long-term capital asset

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I have sold a property gifted by my father that was purchased in 1989. The sale took place within one month of the gift deed and there were capital gains. Will it be considered long-term or short-term capital gains? Also, what can I do to save tax on such gains? Please guide as to how should I calculate such tax?

—Mohan P.

We have assumed that the property being referred to is a residential house property.

As the house property was held for more than 24 months prior to sale (this includes the period of holding by your father), the said property will qualify as a long-term capital asset. The resultant gain or loss arising out of sale of the said property would be taxable as a long-term capital gains or loss (LTCG/L) in your hands.

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The LTCG/L is calculated as the difference between the net sale consideration (actual sale consideration less brokerage and incidental expenses) and the indexed cost of acquisition (ICOA) and improvements.

Since the house property has been transferred by gift, the cost of acquisition for you will be the cost to the original owner (your father in this case). Where a capital asset is purchased prior to 1 April 2001 (1989 in your case), the cost of such asset for the purpose of calculating LTCG/L on sale, shall be substituted with the fair market value (FMV) of the asset, as on 1 April 2001, at the option of the assessee. It should be noted that, as per the Finance Act, 2020, such FMV cannot exceed the stamp duty value as on that date. The indexed cost of acquisition of the asset would be calculated as the cost of acquisition or FMV as on 1 April 2001 / Cost Inflation Index (CII) of financial year 2001-02 (i.e. 100) x CII of the year of sale.

Further, if the actual sale consideration is lower than the stamp duty value by more than 10%, the stamp duty value would be regarded as the deemed sale consideration, for the purpose of calculating such LTCG/L.

The tax is payable by you at 20% (plus applicable surcharge and cess) on the resulting LTCG.

A roll over exemption on the resulting LTCG, is available towards the following investments, subject to the prescribed conditions and timelines:

• Under Section 54 of the Act, by investing the LTCG in a new residential house in India;

• Under Section 54EC of the Finance Act, 2020, by investing the LTCG in specified notified bonds; and

• Under Section 54GB of the Act, by investing net consideration in equity shares of an eligible start-up.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

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