Dear Sir, My mother is a tenant under the old "Pagdi" system of one building which is no longer standing . Now if and when this building gets redeveloped , my mother plans to sell her Tenancy rights to the Developer at the then prevailing rates instead of a apartment in the new building. My question is : in that case the amount she receives from the Developer will get taxed as Capital Gains or the normal Income tax slab rates? Thanks in advance, sir. Sumit Ganguly

Ans: The TDS (Tax Deducted at Source) of 1% on the sale of property exceeding Rs 50 lakhs is applicable on the full sale consideration. In your case, since the total sale consideration was Rs 5,973,000, the TDS of Rs 59,730 was deducted as per the guidelines. Based on the information you've provided, you might be liable for Capital Gains Tax. Capital Gains Tax is calculated based on the difference between the selling price and the indexed purchase price. The indexed purchase price adjusts the original purchase price for inflation over the holding period.
The tax on long-term capital gains is usually 20% (plus applicable surcharge and cess) after considering any exemptions or deductions available under Section 54 or Section 54F if you are not investing in another property or capital gains bonds.

To close the transaction and fulfill your tax obligations, you should consider the following steps:

a. Calculate Capital Gains: As explained above, calculate the capital gains based on the indexed purchase price and selling price.

b. Pay Capital Gains Tax: If you decide not to invest in another property or capital gains bonds, you will need to pay the applicable capital gains tax. You can do this by filling out the appropriate sections in your income tax return and paying the tax amount.

c. File Income Tax Return: Ensure that you accurately report the capital gains in your income tax return for the assessment year.

d. Keep Documentation: Maintain all relevant documents related to the property sale, purchase, and tax calculations for future reference

Ans: Here's a breakdown of the tax implications for your mother's situation:

Sale of Flats:

The sale proceeds from selling the flats will likely be considered a capital gain. Since she received these flats in exchange for her land, the cost price for calculating the capital gain will be the cost of the original land.
Tax Treatment:

Long-Term Capital Gains (LTCG): If your mother held the flats for more than 2 years before selling, the capital gains will be considered LTCG. For senior citizens (over 60 years), LTCG from the sale of any type of capital asset (including land or buildings) is exempt from tax.

Short-Term Capital Gains (STCG): If she held the flats for 2 years or less, the gains will be considered STCG. However, there's no separate capital gains account required for seniors.

Exemption for Senior Citizens:

The good news is that since your mother is a senior citizen, LTCG from the sale of the flats is exempt from tax irrespective of whether she opened a capital gains account or not.
Recommendations:

It's advisable to consult a tax advisor for a more personalized assessment. They can consider factors like the specific holding period of the flats, any applicable exemptions, and filing requirements for senior citizens.
Additional Points:

Even though LTCG is exempt, it's still recommended to maintain records of the original land cost, sale proceeds, and ownership period for future reference.
If the sale proceeds are significant, tax implications on other income sources might need to be considered while filing the ITR.
I hope this clarifies the situation!

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: The cost of your house prior to redevelopment will be split in the proportion that you have received 4 flats and thereafter cost will be arrived and then indexation will be applicable accordingly which will inflate your costs. Will require the details of when the flat was bought and at what rate to answer in detail.

Please reach out to your CA as well before moving ahead.

Ans: Selling a flat post OC is better as it will bring better value. But you can start looking for buyers now.
Also as the property is in your mother's name, entire tax will be paid by her. Post tax she can distribute the amount between you 3 siblings and you will not have to pay any additional tax.