Sir, I am senior citizen having interest income of less than 3 lakh per year. This financial year I have received short term capital gain 12 lakh (house property sold and shared between brothers) whether I can gift part of my income to my wife to save on income tax. Please advise how to save on income tax.

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: Dear Pramod KS,

Thank you for asking about the capital gains tax for your flat's sale. I'll try to simplify the explanation and give you an idea of the tax and how to reduce it. Keep in mind that the accuracy of the answer depends on the details you've provided.

You sold the flat for Rs 122 lakh in March 2023. You made staggered payments for it, totaling Rs 55 lakh, from 14/06/2010 to 25/06/2013. To find the capital gains, we need to adjust the purchase cost for inflation using the Cost Inflation Index (CII) for each payment year.

Since the payments were made over multiple years, we must adjust the purchase cost for each payment separately. For simplicity, let's assume you made equal payments of Rs 18,33,333 each in 2010, 2011, and 2013. The CII for 2010-11 is 167, for 2011-12 is 184, and for 2012-13 is 200. The CII for the year you sold the flat (2022-23) is 331.

We'll adjust each payment's purchase cost like this:
Adjusted Purchase Cost = (Payment * CII for the year of sale) / CII for the year of payment

For the 2010 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 167 = 36,19,278 (approximately)

For the 2011 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 184 = 32,94,804 (approximately)

For the 2013 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 200 = 30,18,000 (approximately)

Now, add up the adjusted purchase costs:
Total Adjusted Purchase Cost = 36,19,278 + 32,94,804 + 30,18,000 = 99,32,082 (approximately)

Now we can find the capital gain:
Capital Gain = Sale Price - Total Adjusted Purchase Cost
Capital Gain = 1,22,00,000 - 99,32,082 = 22,67,918 (approximately)

Since you owned the property for more than 36 months, this is a Long-Term Capital Gain (LTCG). The tax rate is 20% after considering inflation.

Capital Gain Tax Payable = 20% of Capital Gain
Capital Gain Tax Payable = 0.20 * 22,67,918 = 4,53,584 (approximately)

You and your spouse jointly own the property, so each of you will pay tax on your share of the capital gain, approximately Rs 2,26,792 each.

To reduce the capital gains tax, consider these options:

Invest the capital gain in special bonds under Section 54EC of the Income Tax Act. These have a 5-year lock-in period and must be invested within 6 months after selling the property.
If neither you nor your spouse owns more than one residential property at the time of the sale, you can use the capital gains to buy or build a new house within specific time limits under Section 54 of the Income Tax Act. You must buy the new property within 2 years or build it within 3 years from the sale date.
Remember that these options have certain rules and limits. It's a good idea to talk to a tax professional to discuss your specific situation, calculate the exact adjusted purchase costs and capital gains, and follow the correct rules. I hope this information helps.

If you need assistance with the exact calculations based on the specific payment amounts and dates, a tax professional can guide you through that process. They can also help you understand the various exemptions and investment options available to minimize your tax liability further.

I hope this information has been helpful in clarifying the capital gains tax and potential ways to reduce it.

Best regards,
Hardik Parikh

Ans: Tax on capital gain arises on transfer of house property will be applicable as per the prescribed conditions and required to be shown in Income tax return. However, amount transferred to son as gift is not an income. Thus, not liable to tax.