Long-term capital gain attracts 20% tax

SC Vasudeva

Q. I purchased a plot in January 2012 and completed the construction of house in 2016. I am an income-tax payee and have been reflecting the rent in my income-tax return regularly. I transferred the said house legally to my son in January 2019. Now my son wants to re-locate to a foreign country. He wants to dispose of the said property without completing three years for getting the benefit of long-term capital gain if he sells the house in the financial year 2020-21. Kindly advise the income-tax liability of my son. He has reflected the rental income in his income-tax return for the financial year 2019-20 along with his other income.

Kindly advise how to calculate the cost of the house (including the cost of plot + construction of the house) for short-term capital and long-term capital gain, though I have legally transferred the property to my son. Please also let me know if I would also have any tax liability. - Hardeep Singh Dhaliwal

A. On the basis of particulars given in the query, it seems the house was transferred by a gift to your son within three years of the completion of the construction. This transaction by itself does not get covered for the purpose of levy of tax though the house has been transferred without any consideration.

The profit arising on the transfer of the house by your son would result into a long-term capital gain as the period of holding by you would also be considered for the purpose of determining the holding period by your son.

The cost of construction of the house should be computed after taking into consideration (a) the amount of cost of the land, including stamp duty and other registration charges paid in connection therewith and (b) the cost incurred for construction of the house on such a land. In case you do not have any details with regard to the cost of construction, you may get an approved valuer’s report estimating the cost of construction during the period of the construction of the house. The cost of the land and the cost of the construction would be indexed as per the cost inflation index notified by the Central Board of Direct Taxes applicable for the years in which the land was purchased and the house was constructed. The amount so arrived at shall be deducted from the sale price so as to ascertain the amount of long- term capital gain. The long-term capital gain is currently taxable @20% plus 4% cess on the tax so computed. Tax on such long-term capital gain would be payable by your son. You will not be required to pay any tax on sale of the house of which your son has become the owner by virtue of the gift made by you.

Q. Kindly refer to your reply to my query dated 21.10.19 regarding inclusion of expenses incurred on physiotherapy in the medical expenditure to claim the relief u/s 80 D. In my opinion, the issue needs further clarifications on the following points:

1. The dictionary meaning of medicine is 'the science or practice of the diagnosis, treatment, and prevention of disease. And the dictionary meaning of physiotherapy is 'the treatment of disease, injury, or deformity by physical methods such as massage, heat treatment; and as per the definition given in the book titled "National Physical Therapy Examination" authored by Mark Dutton and published by McGraw-Hill, 'Physical therapy includes diagnosis and management of movement dysfunction and enhancement of physical and functional abilities ; restoration, maintenance and promotion of optimal physical function, optimal fitness and wellness, and optimal quality of life as it relates to movement and health ; and prevention of onset, symptoms, and progression of impairments, functional limitations, and disabilities that may result from diseases. disorders, conditions, or injuries."

Hence, the above-mentioned dictionary meanings clearly indicate that the main purpose of medicine and physiotherapy is treatment and prevention of disease through diagnosis. Moreover, the term 'expenditure' is wide enough in its scope to include expenditure incurred on physiotherapy along with the required devices.

2. There are certain diseases that can only be treated with physiotherapy. Or, beyond a certain level of surgical procedures as also after taking medicines, the medical specialists/surgeons themselves advise physiotherapy. In such cases, in my opinion, the expenditure incurred on physiotherapy should qualify for the benefit of deduction u/s 80 D.

3. Would it make any difference if the physiotherapy is specifically advised by the surgeon/medical specialist and the physiotherapy is undertaken through a reputed hospital for the purpose of claiming the deduction. Please advise.

- Manjit Singh

A. I have already given my opinion with regard to the definition of the term “medical” and therefore would not like to get into a discussion on your opinion. I still feel that medical expenditure should not include expenditure incurred on physiotherapy. My opinion is fortified on the basis of the dictionary meaning of the “medical” contained in Black’s Law Dictionary (5th edition) which reads as under:

“Pertaining, relating or belonging to the study and practice of medicine or the science and art of the investigation, prevention, cure and alleviation of disease”.

The above definition in my opinion does not cover physiotherapy. I may add that you have yourself indicated in the definition of physiotherapy that “such therapy includes prevention of onset, symptoms, and progression of impairments, functional limitations, and disabilities that may result from diseases, disorders, conditions, or injuries”. Therefore, there is a distinction between the treatment of a disease or injury and the therapy is the later part after such disease or injury has been cured by a medical/surgical intervention. Any claim of expenditure incurred on physiotherapy, under Section 80D of the Income-tax Act 1961 (The Act) is bound to entail litigation.

It would not, in my opinion, make any difference if the physiotherapy has been specifically advised by the surgeon/medical specialist and it is undertaken through a reputed hospital.