My grandfather purchased a one room kitchen in Pagdi system at Goregaon West in Mumbai for Rs. 6,000 in 1960’s. Now the unique house owners of the constructing have offered the constructing with its land to a builder. The builder has given an quantity of Rs. 27 lakh to my grandmother (my grandfather expired some 35 years in the past) to vacate the premises. How this quantity obtained from the builder can be taxed below Income Tax in her fingers? My grandmother is of 85 years of age and doesn’t have every other earnings. How can we save tax on this quantity?
Answer: An individual has to pay capital features tax on the income realised on sale/switch of a capital property. The similar could also be long run capital features or quick time period capital achieve relying on the holding interval of the asset offered. Basically the Pagdi system is a system below which a tenancy proper in a constructing is bought and which may be transferred for a value, with the consent of the owner. So what your grandmother has transferred is her tenancy proper which is a capital asset. Any cash obtained over the price of the tenancy proper is to be provided for tax as capital features. As the tenancy rights have been acquired greater than 3 years previous to the date of switch, the income can be handled as long run capital features.
Moreover, because the tenancy rights have been acquired by your grandfather previous to 1st April 20001, your grandmother has an choice to take the Fair Market Value (FMV) of the tenancy proper as on 1st April 2001 as value of the tenancy rights and apply the associated fee inflation index on such value to compute the capital features. For arriving on the FMV of the tenancy rights, you may acquire a valuation certificates from a registered valuer. The distinction between cash obtained and listed FMV is long run capital features on which tax is payable at flat 20% past 5 lakh of primary exemption as she doesn’t have every other earnings.
She can save tax on such long run capital features by investing the web consideration for purchasing/setting up a residential home in her identify inside specified time restrict. The capital achieve exemption accessible will get diminished proportionately if she doesn’t make investments complete of the consideration obtained. Since tenancy proper in a residential home isn’t similar as a residential home so she cannot avail the exemption below Section 54 by investing the listed capital features however should make investments the web consideration to avail the exemption below Section 54F. Since tenancy proper is neither land nor a constructing she cannot avail the tax exemption by investing in capital features bonds below Section 54EC.
Balwant Jain is a tax and funding knowledgeable and may be reached on jainbalwant@gmail and @jainbalwant on Twitter.
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