How is the sale of ancestral property taxed?

I had bought a 3-BHK flat in September 2015 and invested the proceeds in a brand new flat. In March this 12 months, I bought my ancestral property—an house— and acquired some land with intention to assemble a home thereon. How will I have the ability to benefit from the long-term capital positive factors (LTCG)?

—Name withheld on request

It is assumed that you’re the proprietor of the ancestral flat, being a residential home property held for greater than 24 months (together with the interval of holding by the earlier proprietor) earlier than its sale. The sale of such ancestral flat (unique asset) can be thought of as a sale of long-term capital asset and liable to be taxed as LTCG in your palms.

As per provisions of the Income-tax Act, deduction towards LTCG on sale of residential home property is obtainable, the place the reinvestment of LTCG is completed for building of a residential home property or buy of a residential home property in India, topic to different specified timelines and situations. Such buy or building of residential home property could be completed both one 12 months earlier than the date of sale of unique asset or inside two years (in case of buy) / three years (in case of building) after sale of the unique asset, respectively.

Based on out there judicial precedents and circulars issued by the tax division, funding in buy of plot of land for building of a home property could entitle a taxpayer to say deduction underneath part 54 of the Act, topic to prescribed situations. Since you intend to assemble a residential home, the deduction could also be thought of if the development of the residential home thereon is accomplished inside three years from the date of sale / switch of the unique asset, i.e. ancestral flat. Any LTCG quantity that is still uninvested as much as the due date of submitting the tax return would should be deposited by you underneath the prescribed Capital Gains Account Scheme and utilized as per the situations prescribed.

Please word that you wouldn’t be eligible for an exemption should you select to solely buy a plot of land (with out building of residential home property thereon inside the prescribed timelines) and in such case you’ll be responsible for tax on the LTCG, as relevant, within the monetary 12 months through which the timeline of three years expires.

Parizad Sirwalla is accomplice and head, international mobility companies, tax, KPMG in India.

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Updated: 02 Jul 2023, 10:20 PM IST