Sir, An ancestral property, an agricultural land (coconut garden) located 11 KM away from the nearest municipality will be sold in the near future. The sale proceedings will be shared by 5 siblings in unequal proportions as per previous agreement. There will be a 5% advance payment in one FY followed by the final payment at the time of registration in the next FY. Is the individual shares of sale proceedings taxable? If yes, please give an idea as to how the tax calculation proceeds. If not taxable, how the gain is shown in the tax filing form and do the individuals need to keep declaration copies signed by all siblings as proof of transaction?

Ans: Hi Kedarji
Based on your question, apparently on property records, your mother-in-law is the owner of the land. I do not wish to get into the legal heirship aspect of the land post your father-in-law's demise and hence i would restrict my answer within the perspective of your query.

As your MIL is the legal owner and she is the person selling the land, she will be the person liable to tax for the capital gain arising on sale of the NA land.

The distribution of the net sale proceeds to the 3 daughters could be treated as gift backed up with the relevant paper work such as executing the gift deed etc., to ensure that there is no further taxability to the 3 daughters

Ans: Hi Rajan

As the owner of the land is your father, the taxability would apply to him alone and not to you or your brother.

The query would need further clarity in terms of the following aspects:

Whether this was an agricultural land?
What is the distance of the land from the nearest municipality jurisdiction?
What is the population of the place where the land is located?

In case this is an urban non-agricultural land then you may need to get the valuation report for the land as on April 1, 2001 from an Income Tax approved valuer. This would become your basic cost reference on which you would need to apply indexation. An example is stated below for easy understanding.

Suppose the valuation report brings out a value of Rs. 20 Lakhs as on April 1, 2001

Current Cost Inflation Index (CII) is 331 and base year (2001) index is 100

So indexed cost of acquisition would be Rs. 20 Lakhs x 331 / 100, which is Rs. 66.20 Lakhs

So capital gain would be Rs. 75 Lakhs - Rs. 66.20 Lakhs = Rs. 8.80 Lakhs on which your father would need to pay 20+% of tax.

As this is a regular asset, in case he wants to pay NIL tax then he would need to reinvest the full sale consideration in some eligible asset such as residential house or capital gains bonds (go-downs / shops are not eligible assets).

If he reinvests in eligible asset partially then he would get exemption only proportionately. Taking the same example:

Suppose he reinvests Rs. 50 Lakhs in capital gain bond (say NHAI or REC) then the eligible proportionate exemption would be as follows:

Rs. 50 Lakhs / Rs. 75 Lakhs x Rs. 8.80 Lakhs = Rs. 5.87 Lakhs

He would need to pay the 20+% tax on Rs. 2.93 Lakhs. He would be eligible to marginal relief provisions if his pension income is not substantial. Also, he may end up with Nil tax if his total income is below Rs. 5 Lakhs