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Inheritor seeks advice: Splitting property proceeds, paying sibling, and navigating LTCG

T S Khurana

T S Khurana   |451 Answers  |Ask -

Tax Expert - Answered on Nov 02, 2024

A certified management accountant since 1993, T S Khurana is a fellow member of The Institute of Cost Accountants of India. His areas of expertise are income tax, specifically litigation cases, and GST.

Since the last 21 years, he has also been providing expert advice on financial matters, including investments and diversification of funds, and wealth building in the long term to his clients.
He believes that investment in real estate is the safest way for better returns and wealth generation over a period of time.

A former chairman of the Chandigarh Chapter of Institute of Cost Accountants of India, T S Khurana has also served as member of its technical committee.... more
Sampath Question by Sampath on Aug 07, 2024Hindi
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Dear Sir, We have inherited a property in Bangalore. The property was in my Mother's name who attained lotus feet last November. This is a bit complicated situation. 1) The actual payment for the property was done in 1998. 2) The property registration in My Mother's name was done in 2016. The value of purchase in 1998 was 6 Lacs. Renovation and modest addition is approx. 6 Lacs. 3) The property in now co owned by self and Brother. 4) We have a sister who has signed release deed. 5) The current market rate is approx. 1.7 Cr. My question is, 1) If we sell, can we ask the buyer to make separate payments to the two of us? 2) We intend to pay our Sister (resident of Australia) some portion of the recievables. Can we ask buyer to make separate payment to her? 3) We have an existing home loan which we intend to close using the money. 4) How will the LTCG role out in this situation? Also as of today there is an amendment that we can chose either 20% with indexation or 12.5 without indexation. Which is the right one to chose? Request your valuable guidance, please.

Ans: I offer my following suggestions for your points of concern :
01. The Buyer will make payment to the owner of property. Has property been transferred in favor of both of you ?
If Yes, then he shall make payment to both of you, separately, as desired by you.
02. The buyer should not make any direct payment to your sister.
After receiving the sale proceeds, both of you, may Gift some amount to your sister. It will be a separate transaction. Please note that your sister will not have any income tax implications, in case of gift from brothers.
03. You are free to use the sale proceeds of property in any way, even for re-payment of housing loan.
04. You need to work out LTCG in both ways, i.e., 20% with Indexation & 12.50% without Indexation. You may choose the option, in which you tax liability is minimum.
Most welcome for any further clarifications. Thanks.
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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T S Khurana

T S Khurana   |451 Answers  |Ask -

Tax Expert - Answered on Nov 23, 2024

Asked by Anonymous - May 11, 2024Hindi
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Can you please suggest on capital gains as per Indian taxation laws arising in the below two queries : 1) property purchased with joint ownership, me and my wife’s name in 2015 at a cost of 64,80,000, housing improvements done for the cost of 1000000 and brokerages of 200000 paid and sold the same property at 10000000 in Dec 2023? 2) 87% of the proceeds got from the deal i.e 8700000, have been reinvested to pay 25% amount in purchasing another joint ownership property in Dec 2023, 3) I have invested in another under construction property in Nov 2023 by taking housing loan, which is on me and my wife’s name worth 1.4 cr, here the primary applicant is me only while wife is just made a Co applicant in the builder buyer agreement and also on the housing loan . So what are the LTCG tax liabilities arising from the above 3 scenarios for FY 2023-2024 and FY 2024-2025. I intend to sale off the property acquired in (2) by Dec 2024 and use that proceeds to close the housing loan for the property acquired in (3), will this sale of property be inviting any tax liabilities if the complete proceeds received from the sale of the property in (2) would be utilised to close the housing loan taken in Nov 2023 for the property in (3) ? Since in FY 23-24, I would be claiming the LTCG from the sale proceeds of 1) invested in the purchase of property in 2), and I intend to sale off this property in Dec 2024, will the LTCG claim be forfeited on the property sale in (1), should I hold this property at least for further 1 year so that sale of this property in 2) will not invite STCG?
Ans: (A). Let's first talk about F/Y 2023-24 :
You jointly sold a Property during the year for Rs.76.80 lakhs (64.80+10.00+2.00), & sold the same for Rs.100.00 lakhs.
You have jointly also purchased Property No.3 (I suppose it is Residential only), for Rs.140.00 lakhs.
You should avail exemption u/s-54 & file your ITR accordingly. Please disclose all details about sale & purchase in your ITR.
02. Now coming to the F/Y 2024-25 :
You intend to Sell Property No.2, which was acquired in 2023-24. Any Gain on Sale of it would be Short Term capital Gains & taxed accordingly.
Alternatively, you may hold this sale of property no.2 (for 2 years from its purchase) & avoid STCG
You are free to utilize the sale proceeds in a way you like, including paying off your housing Loan.
Please note to avail exemption u/s 54 only from investment in property no.3 & not 2.
Most welcome for any further clarifications. Thanks.

..Read more

Ramalingam

Ramalingam Kalirajan  |8285 Answers  |Ask -

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

Asked by Anonymous - Jul 25, 2024Hindi
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Hi Mihir- I have to sell an inherited old house made before 1987. The price at that point may be 7 Lakhs. The valuer gave a report of value of 32 L in 2001 and indexed cost of 1.15 CR in 2024. I am planning to sell at 5 CR registration value? How will we calculate the LTCG on the sale proceeds? How can we utilize the LTCG. How many flats can we buy from the amount - is there a limit? I have 2 properties in my name. Also, I have loans pending Upto 3 CR. Can I pay them back? Two loans were taken last October 2023. What will be the tax implications if I don’t invest ? What are the best ways to invest and save on LtCG accrued basis the sale. Thanks for your response
Ans: The biggest change is that the benefit of indexation gets withdrawn. In simple terms, now you cannot adjust the purchase cost of the property for inflation to bring down your taxable capital gains.

Flat Tax Rate: The LTCG from property shall now be taxed at a single 12.5% plus applicable cess.

The base year for computation of capital gains in respect of properties acquired before April 1, 2001, has now been shifted from 1981-82 to 2001-02.

Point to Note:
Fair Market Value (FMV) as on April 1, 2001: You may opt to consider the FMV of the property as on April 1, 2001, as your cost of acquisition for the purpose of computing capital gains.

Assuming you opt for FMV as on April 1, 2001:

FMV as on April 1, 2001: Rs. 32 Lakhs (as per your valuation report)
Sale Price: Rs. 5 Crores
Capital Gain: Rs. 5 Crores - Rs. 32 Lakhs = Rs. 4.68 Crores
Tax: Rs. 4.68 Crores * 12.5% = Rs. 58.5 Lakhs
Availing LTCG
1. Section 54EC Bonds:

Invest the amount of LTCG in bonds issued by NHAI, REC, IRFC, or PFC within 6 months from the date of sale.
You can claim full exemption from tax on LTCG.

2. Section 54F:

Invest in a new residential house within 2 years from the date of sale.
You can claim exemption from LTCG tax to the extent of the cost of a new house.

3. Capital Gains Account Scheme:

Deposit the amount of LTCG in a Capital Gains Account Scheme within 6 months from the date of sale.
You get 3 years to invest in a new residential house.
If invested within 3 years, no LTCG tax is payable.

Flats Purchase
There is no specific limit as to how many flats one can purchase from the sale proceeds. However, if you are investing the amount to claim exemption under Section 54F, the property should be for self-occupation.

Loans and Tax Implications
You can use the sale proceeds to repay your loans, including the ones taken in October 2023. But it will not qualify for LTCG exemption. In case you fail to invest the LTCG amount to claim exemption, then you will have to pay tax on the LTCG as computed above. However, the property purchased on October 2023 can be considered for LTCG exemption. Please consult a tax advisor one on one to get clarity on this.

Best Ways to Invest and Save on LTCG
Prioritize Section 54EC bonds for full exemption.
If you plan to buy a new house, consider Section 54F or CGAS.
Consult a tax professional for other possible ways of saving taxes that might pertain to you.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Sushil

Sushil Sukhwani  |594 Answers  |Ask -

Study Abroad Expert - Answered on Apr 24, 2025

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Hello Sir. My Son has got offer from follwing University.. 1)University of Padua - Italy (BSC - Information Technology) - 3 years Course 2)University Of Strathclyde - UK (BSC - HON Computer Science) - 4 yrs 3)Caledonian University of Glassgow - UK (Bsc Hons Computing). 4 yrs 4) National College of Ireland (BSC - HON Computer Science Engg) - 4 yrs We are confused to select the university / country
Ans: Hello ASAD,

First and foremost, thank you for getting in touch with us. I am glad to know that your son has received offers from the above mentioned universities. As an answer to your query, I would like to tell you that a prestigious and budget-friendly education in a lively Italian environment, along with a reputable academic standing and lower living expenses is offered at the University of Padua; its 3-year BSC - Information Technology may also provide a quicker path to higher education or jobs. Coming to the University of Strathclyde, top-ranked in the UK for Computer Science, this university is renowned for its linkages with industry, research possibilities, as well as outstanding student services, offering robust employment opportunities. Next, situated in a student-centric city with budget-friendly costs in comparison to other cities in the UK, Glasgow Caledonian University focuses on hands-on, industry-focused learning with impressive graduate employment rates. The National College of Ireland provides a small, contemporary campus in Dublin with robust ties with the technology sector, internships, and employment prospects in one of Europe’s key technology hotspots.

Lastly, deciding which university and country to select depends on your son’s professional objectives, ideal learning atmosphere, budget, as well as plans for the future- whether he prefers a shorter course term, robust industrial connections, global exposure, or residing in a specific nation.

For more information, you can visit our website: www.edwiseinternational.com

You can also follow us on our Instagram page: edwiseint

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