We’ve been staying in a pagdi flat in Mumbai for over 50 years. The flat is now set for redevelopment. What would be the taxation if we promote it after redevelopment? Will the capital beneficial properties be calculated on your complete worth or will there be some indexation? Also, is the funding below 54G and others for your complete quantity or as much as ₹50 lakh solely?
The home was in my deceased grandmother’s title —we have now a transparent line of succession however we are attempting to get the home in my mom’s title who’s a senior citizen with no earnings, or my title earlier than promoting it. How would that affect our taxes?
—Shapran
Based on the information offered by you, it’s assumed that your deceased grandmother had rights within the unique property by means of Pagdi, a system prevalent in Mumbai. The mentioned rights have/ shall be inherited by your mom and also you.
It is assumed that Pagdi of the property is just in relation to the tenancy and possessory rights to occupy the property and the identical shouldn’t be equal to the authorized possession of the property. At no stage, your grandmother/ your mom or you might have authorized and possession rights to the property (pre-post redevelopment). Further, no alteration/ modification/ switch of tenancy rights will happen on the time of redevelopment and no consideration shall be acquired by you in opposition to the identical.
In such case, the sale of Pagdi within the re-developed property could also be construed as sale of tenancy rights. Since, Pagdi within the property is held for over 50 years, the identical qualifies as long-term capital asset (LTCA) and achieve arising from the sale shall be termed as long-term capital achieve (LTCG).
As per the part 55(2)(a) of the Income tax Act, 1961 (‘the Act’) learn with part 49(1) of the Act, price of acquisition in relation to a capital asset being tenancy proper the place it’s acquired by below present or will/ by succession, inheritance it needs to be price to earlier proprietor (i.e. your grandmother). As per the provisions of the Act, the place the LTCA is acquired earlier than 1 April 2001, the price of acquisition shall be the precise price of the asset or Fair Market Value (‘FMV’) as on 1 April 2001.
Since the tenancy/Pagdi proper in property is an LTCA, you may modify the Cost of Acquisition (CoA) primarily based on the relevant Cost Inflation Index (CII). Further, the price shall be elevated for any bills incurred for the advance of asset. It is to be famous that LTCG earnings can be taxable as per the provisions of part 112 of the Act i.e., on the fee of 20% plus relevant surcharge and cess.
Further, one could declare the next deductions from LTCG earnings:
-Under part 54F, by investing the online sale proceeds in buy /building of one other property throughout the specified timelines (offered that the particular person doesn’t maintain multiple property, along with the brand new home, on the date of sale of LTCA) Where your complete web sale proceeds usually are not invested and solely a component quantity is invested, the deduction u/s 54F shall be obtainable just for the proportionate LTCG.
– Deduction below Section 54EC (the place deduction of ₹50 lakh is on the market in direction of funding in specified bonds) ought to arguably not be obtainable because the deduction is in direction of sale of residential home owned by the assessee and never Pagdi which is within the type of tenancy rights.
Further, assuming your mom is a resident in India and doesn’t have every other earnings, advantage of the unexhausted exemption restrict of ₹3 lakh for senior residents upto 80 years of age, shall be allowed in opposition to the LTCG earned by her and the steadiness achieve shall be topic to tax.
Parizad Sirwalla is associate and head, Global Mobility Services, tax, at KPMG India.
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