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Do I have to pay capital gains tax on the sale of my inherited property in Bhayandar?

Ramalingam

Ramalingam Kalirajan  |8272 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 19, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Deepak Question by Deepak on Jul 02, 2024Hindi
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My Father has purchase a property for rs 115000 in year 1994.at Bhayandar west district Thane at Maharashtra state.and my Father did this registration in amnesty scheme in year 2008.and after that my Father died in year 2014.and after I made a release deed transfer this property in my name (son). I sold this residential property in June 2024for rs 30lakh.in this case I want to know the status of capital gain is there or not I also want to know if I sell this residential property .I can purchase ashop or not. If I want to save capital gain what is the solution to save my tax. Thanking u.

Ans: You sold a property in June 2024 for Rs 30 lakh. It was bought for Rs 1,15,000 in 1994. Let's evaluate if there's a capital gain.

Indexed Cost of Acquisition

The property purchase cost will be adjusted for inflation. This is called the Indexed Cost of Acquisition (ICA). The ICA is calculated using the Cost Inflation Index (CII) provided by the Income Tax Department.

Calculating Indexed Cost

Calculate the ICA to understand your capital gain. Since we won't use specific formulas here, you can consult a Certified Financial Planner to get the precise ICA value. This helps in determining the exact capital gain.

Long-Term Capital Gains (LTCG)

Since you held the property for more than 24 months, it is classified as a long-term asset. The profit from the sale, after adjusting for the ICA, is your Long-Term Capital Gain (LTCG).

Tax on LTCG

LTCG is taxed at 20% with indexation benefits. However, there are ways to save on this tax.

Investing in Another Property

You can save on capital gains tax by investing in another residential property. This is covered under Section 54 of the Income Tax Act. If you buy a residential house within two years or construct one within three years, you can claim exemption.

Investing in Capital Gains Bonds

Another option is to invest in Capital Gains Bonds under Section 54EC. These bonds have a lock-in period of five years and provide tax exemption on the gains. The maximum investment limit in these bonds is Rs 50 lakh.

Purchasing a Shop

Buying a shop will not provide capital gains tax exemption under Section 54. The exemption is only for residential properties. If you sell a residential property, you must reinvest in a residential property to save on capital gains tax.

Other Options to Save Tax

Residential Property: Invest in another residential property within two years.

Construction: Construct a new house within three years.

Capital Gains Bonds: Invest in these bonds within six months of the sale.

Final Insights

To save on capital gains tax, reinvest in a residential property or Capital Gains Bonds. Purchasing a shop will not help in saving tax on capital gains. Consulting a Certified Financial Planner can help you navigate these options efficiently.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8272 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 01, 2024

Asked by Anonymous - Jul 01, 2024Hindi
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My Father has purchase a property for rs 2lakh in year 1994.and my Father did this property registration in amnesty scheme in year 2008.and after that my Father died in year in December 2014.and after that I made a release deed in may 2024.and transfer this in my name(son). And I sold this property (residential) for rs 30lakh in year 2024 June month. In this case I want to know is there any capital gain is there or not.
Ans: let’s work through the details of your capital gain calculation step by step and discuss the tax implications. Here’s a detailed answer to your query:

Calculating Capital Gains on Sale of Property
Understanding Key Terms
Cost of Acquisition: The original price paid for the property, which is Rs. 2 lakh in 1994.
Indexed Cost of Acquisition: The cost of acquisition adjusted for inflation using the Cost Inflation Index (CII).
Sale Price: The price at which the property was sold, which is Rs. 30 lakh in 2024.
Cost Inflation Index (CII)
The Cost Inflation Index (CII) is used to adjust the purchase price of the property for inflation. Here are the relevant CII values:

1994-95: 259
2008-09: 582 (year of registration under amnesty scheme)
2014-15: 1024 (year of your father's death)
2023-24: 348 (assumed latest CII for calculation purposes)
Step-by-Step Calculation
Determine the Year of Acquisition for Indexation Purposes:

Since the property was registered under the amnesty scheme in 2008, we use 2008 as the base year for indexation purposes.
Calculate Indexed Cost of Acquisition:

The original cost of acquisition (in 1994) is Rs. 2 lakh.
The CII for 2008-09 is 582, and for 2023-24, it is 348.
Indexed Cost of Acquisition = (Cost of Acquisition) * (CII of the year of sale / CII of the year of acquisition).
Indexed Cost of Acquisition = Rs. 2,00,000 * (582 / 348).
Calculate Capital Gain:

Sale Price: Rs. 30 lakh.
Capital Gain = Sale Price - Indexed Cost of Acquisition.
Calculations
Indexed Cost of Acquisition
Indexed Cost of Acquisition = Rs. 2,00,000 * (582 / 348) = Rs. 2,00,000 * 1.6724 = Rs. 3,34,480

Capital Gain
Capital Gain = Sale Price - Indexed Cost of Acquisition

Capital Gain = Rs. 30,00,000 - Rs. 3,34,480 = Rs. 26,65,520


Tax Implications
Capital gains tax on the sale of a residential property is typically categorized as long-term capital gains (LTCG) since the property was held for more than three years. The LTCG tax rate is usually 20% with indexation benefits. Here's a more detailed breakdown:

Long-Term Capital Gains Tax (LTCG):

The LTCG on the sale of a residential property held for more than three years is taxed at 20% after indexation.
Calculation of LTCG Tax:

LTCG = Rs. 26,65,520
LTCG Tax = 20% of Rs. 26,65,520 = Rs. 5,33,104
Reducing Tax Liability
To reduce your tax liability, you can consider the following options:

Investing in Capital Gains Bonds:

You can invest up to Rs. 50 lakh in specified bonds under Section 54EC to save on LTCG tax. These bonds have a lock-in period of five years and provide a safe investment option with tax benefits.
Investing in Residential Property:

Under Section 54, you can reinvest the capital gains in purchasing or constructing another residential property. This needs to be done within two years of the sale of the property or within three years if constructing a new house. This exemption is available if the new property is not sold within three years from the date of purchase or construction.
Setting Off Losses:

If you have any other capital losses, you can set them off against these gains to reduce your taxable amount.
Steps to Follow
Calculate Your Exact Tax Liability:

Use the above formulas to compute the exact LTCG and the corresponding tax.
Plan for Tax-Saving Investments:

Decide whether to invest in capital gains bonds or a new residential property to save on LTCG tax.
Consult a Certified Financial Planner (CFP):

A CFP can provide personalized advice tailored to your financial goals. They can help in selecting the right tax-saving investments and strategies to optimize your tax liability.
Final Insights
To summarize, you have made a significant capital gain of Rs. 26,65,520 from the sale of your property. This gain will be subject to long-term capital gains tax, typically at a rate of 20% after indexation. However, by strategically planning your investments, you can reduce your tax liability significantly. Consider investing in Section 54EC bonds or another residential property to avail of tax exemptions. Regularly consult with a Certified Financial Planner to ensure your financial decisions align with your long-term goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Dear Sirs Please review my investment towards 7.5 CR. There are 2 components towards it , 1) Generate monthly income post tax of 4 lakhs, 2) Investment Corpus Towards Capital appreciation Towards option 1 : Investing in the following - a) Tata Motors or Chola Perpetual Bonds 1.4 cr , b) ICICI Balanced Advantage Fund 1cr, c) Kotak Balanced advantage fund 1 cr Towards option 2 ie Capital Appreciation investing in the following - a) HDFC Flexi Cap Equity fund 1.25 cr , b) Parag Parikh Flexi Cap Equity Fund 1.25 cr, c) ICICI Prudential India Opportunities Fund 80 Lakhs, d) ICICI Prudential Multi asset fund 80 lakhs I am looking at a 5 - 7 year investment timeline. Have taken early retirement at 50 years and need the funds to sustain myself. Please also advise if Perpetual bonds is a good option Thanks
Ans: Your investment strategy is thoughtfully constructed. You’ve clearly defined two components:

Monthly income of Rs. 4 lakhs

Capital appreciation with a horizon of 5 to 7 years

Let’s assess each component carefully and suggest improvements.

 

 

Monthly Income Generation Plan – Review and Insights
 

You’ve allocated the following towards income generation:

Perpetual Bonds – Rs. 1.4 crore

Two Balanced Advantage Funds – Rs. 2 crore

 

Let us look at the key strengths and areas to optimise.

 

Perpetual Bonds – Risk and Suitability

These bonds are issued with no maturity date.

Issuers can delay interest payments if they face pressure.

Tata Motors or Chola bonds offer high interest, but risk is also higher.

You need dependable income. Perpetuals may cause delays or cuts.

If rated ‘AA’ or lower, risk becomes even higher.

For safety, consider shifting part to high-rated corporate bonds.

Choose instruments with a defined maturity or high credit rating.

 

 

Balanced Advantage Funds – Regular Payout Source

You have allocated Rs. 2 crore to two funds here.

These are suitable for monthly SWP (Systematic Withdrawal Plan).

They reduce risk by shifting between equity and debt.

This provides smoother return and helps handle market volatility.

Ideal for your need of steady income.

Choose funds with a good track record of 5+ years.

Go for regular plans through a Certified Financial Planner.

They provide guidance and documentation support.

 

 

Key Adjustments to Consider for Income Plan

Don’t depend only on one instrument for income.

Keep part in ultra-short debt funds to manage emergency needs.

You may also allocate a small amount to floating rate funds.

Avoid riskier perpetuals if your lifestyle depends on this cash flow.

 

 

Capital Appreciation Portfolio – Review and Suggestions
 

You have allocated Rs. 4.1 crore across four funds:

Two Flexi Cap Funds – Rs. 2.5 crore

One Thematic Fund (Opportunities) – Rs. 80 lakhs

One Multi Asset Fund – Rs. 80 lakhs

 

This section looks well-structured. Still, here are some observations.

 

Flexi Cap Funds – Long Term Growth Drivers

These offer a mix of large, mid and small cap stocks.

Flexible allocation helps in market ups and downs.

You have spread Rs. 2.5 crore across two flexi caps.

It gives diversified equity exposure.

Good for your 5–7 year horizon.

Continue this investment.

 

 

Thematic Opportunities Fund – Aggressive but Focused

Thematic funds bet on specific trends.

They can perform well in short cycles.

But they are more volatile.

Rs. 80 lakhs is a high amount in one theme.

Reduce this to Rs. 50 lakhs.

Redirect balance to diversified equity or large-cap funds.

 

 

Multi Asset Fund – Helps Manage Volatility

These funds invest across equity, debt, and gold.

They balance returns with risk.

Ideal for medium-term wealth building.

You can continue this allocation.

Add a second multi-asset fund for balance.

 

 

Direct Plan Exposure – Re-evaluate for Personalised Support

Direct plans avoid distribution cost.

But guidance is missing.

Without CFP support, wrong fund choice or exit may happen.

Regular plans through a Certified Financial Planner give tracking.

They help during market swings, taxation and rebalancing.

This becomes very important in large-value portfolios.

 

 

Asset Allocation Review – What’s Working and What Needs Tune-Up
 

Your allocation is roughly:

45% towards income (Rs. 3.4 crore)

55% towards growth (Rs. 4.1 crore)

This mix looks aligned to your goal of current income and future corpus.

Still, consider the following:

 

Review this mix yearly with your Certified Financial Planner

If market rallies too much, shift some growth to income

If interest rates rise, reduce equity withdrawal and increase debt

Keep Rs. 25–30 lakhs in liquid fund for any large emergency

 

 

Taxation on Mutual Funds – Stay Aware of Recent Rules
 

Equity mutual funds:

LTCG above Rs. 1.25 lakh is taxed at 12.5%

STCG is taxed at 20%

 

Debt mutual funds:

Both LTCG and STCG taxed as per your tax slab

Most retirees fall in lower slab but tax planning still needed

Prefer SWP for income, not dividend option

Keep P&L statement ready for advance tax filing

 

 

Tax-Free Cash Flow – Can You Improve It?
 

You can also look at these steps:

Use HUF or family member’s name for part investment

Income from their investment gets taxed in their slab

Helps reduce your tax burden

Invest Rs. 1.5 lakh yearly in PPF for guaranteed, tax-free return

Can also explore Senior Citizen Savings Scheme (SCSS) if eligible

 

 

Avoid Index Funds – Not Suitable for Your Stage
 

Index funds copy the stock market

They don’t adjust based on conditions

There’s no downside protection in falling markets

Actively managed funds give more opportunity to earn and protect

Your current selection rightly avoids index funds

 

 

Avoid Direct Plans Without Support
 

Direct plans don’t include expert guidance

No one checks asset allocation or strategy alignment

You’re investing a large corpus. Mistakes cost more here

Use regular plans via an experienced Certified Financial Planner

They help in paperwork, KYC, taxation, SWP planning, rebalancing

Their personalised help adds more value than small cost savings

 

 

Perpetual Bonds – Should You Continue or Exit?
 

Not the best for regular income seekers

Issuer can skip interest if company faces pressure

Price of these bonds also swings with interest rates

You can’t rely fully on them for Rs. 4 lakh per month

Exit partly and shift to short-duration or banking PSU debt funds

These are better for predictable income with lower risk

 

 

Review of Liquidity and Emergency Planning
 

At least Rs. 30–35 lakhs should be in liquid or overnight funds

This money is for health, family needs or urgent situations

Don’t touch your income or capital funds for this purpose

This buffer will give you confidence and reduce portfolio risk

 

 

Risk Management – How to Prepare for Unseen Events
 

Review health insurance for self and spouse

If you’ve not already done it, get Rs. 25 lakh cover each

Consider critical illness policy to protect against long illness

Update nominations in all funds and accounts

Keep estate plan or Will ready. Talk to your planner on this

 

 

Rebalancing Strategy – Keep it Dynamic
 

Review portfolio every 6 months

Don’t chase top-performing funds blindly

Instead, rebalance as per your income need and age

Reduce equity by 5% every 2 years as you age

This protects corpus and supports steady cash flow

 

 

Finally
 

You’ve structured your Rs. 7.5 crore goal very thoughtfully

You are clear about income and long-term appreciation

Your fund choice is broadly good, with only minor changes needed

Avoid risky bonds like perpetuals as your lifestyle depends on monthly cash flow

Go for actively managed regular funds via Certified Financial Planner support

Keep tax, liquidity, insurance and emergency planning all in place

This will help you enjoy your retirement peacefully and confidently

 

 

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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