How much tax has to be paid on investing in capital gain bonds?

S. C. Vasudeva

Q.I had inherited a plot after my father’s death in  1989. He had purchased the land in 1965 but had got it registered on his name only after 1974 or so subdivided among my brothers and sisters on his death. 

My queries are as under:

• I expect to sell my plot for Rs 55 lakh. What will be my capital gain tax liability in case I do not buy any property? 
• If I put the proceeds in capital gain infrastructure bonds, what will be by tax liability after the three years lock-in period? Will I have to pay capital gain tax or only the normal IT on the interest earned?
• From the date of sale of my plot do I get some grace period of 6-12 months in which to decide my options?
• I know that one can put the proceeds in a capital gain account only with the SBI and a property purchase has to be done within three years. What happens if I cannot purchase any property within three years, is there some provision for extension?

— Alok Mishra

A.Your queries are replied here under: 

• You have not indicated the cost of the plot which you had inherited from your father in 1989.  You have an option to adopt fair market value of the plot of land as on 1-4-1981 since the plot was purchased by your father prior to the said date. You would, however, be entitled to claim benefit for cost inflation index from 1.4.1981 till the year of sale. This is on the basis of latest case law on the subject. The amount of indexed cost so computed will be deducted from the sale consideration of Rs 55 lakh so as to arrive at the amount of capital gain.  It being a case of a long-term capital gain, the same would be taxable @ 20 per cent plus education cess of 3 per cent thereon. 
• In case the amount of capital gain is utilised for investing in tax-saving bonds, you would not be liable to pay tax on the amount of capital gain. You would however, be liable to pay tax on the amount of interest received/receivable on such bonds.
• The investment in tax-saving bonds is required to be made within six months of the date of sale of the capital asset.
• The amount of net consideration accruing on transfer/ sale of the plot can be utilised for constructing or purchasing a residential house so as to save the tax payable on the amount of capital gain.  The construction has to be effected within three years after the date of sale of plot. However, the purchase of a residential house can be made within one year before or two years after the date of sale. The unutilised amount of net consideration is required to be deposited with the bank and not only SBI, under capital gain scheme account before the due date of filing the return of income for the year in which the capital gain arose.  In case an assessee is not able to utilise the amount of net consideration within the period, as specified herein above, the amount of the capital gain arising from the transfer of the capital asset shall be chargeable to tax as long-term capital gain in the previous year in which such period of three years from the date of the transfer of the capital asset expire.

Date of allotment valid for LTCG calculation

Q. I had booked a flat in Mumbai with a builder by paying the first instalment on 24.3.2010. Payments were made as per the schedule and physical possession of the flat was given to me on 13.5.2013.  My query is that in my case will 24.3.2010 be considered as the date of purchase or it will be 13.5.2013.

— Bal Krishan Bindal

A. Legally the date of possession of flat should be taken as the date of ownership of the flat.  This is because right to allotment gets merged with the right of ownership as and when the possession is handed over by the builder to the owner. However, there are a number of cases of Income Tax Appellate Tribunal of various Benches in which it has been held that for the purposes of ascertaining the period of three years for determining whether the flat is a short-term or long-term capital asset, the date of allotment of flat should be taken as the basis for deciding the above aspects.  According to such decisions, therefore, the date of allotment of flat i.e. 24.3.2010 should be considered for computing the amount of long-term capital gain.

Norms for deduction from rental income

Q.In rental income under house property, taxes paid to MC + 30 per cent flat deduction can be done under Section 24. But I want to know whether the taxes of previous years paid with late fee and penalty in the current year can also be deducted from rent along with the current fiscal’s taxes paid to Municipal Committee?

—R. K. Choudhary

A.Taxes levied by a local authority are deductible while determining the annual value of the property.  Proviso to Section 23 of the Income Tax Act 1961 (The Act) which deals with the determination of annual value provides that the taxes levied by any local authority in respect of the property shall be deducted  in determining the annual value of the property of the year in which such taxes are actually paid.  In view of the above proviso it should be possible for you to deduct taxes paid for the previous years for determination of the annual value of the property for an assessment year in which such taxes have been paid.

Tax on sale of agricultural land

Q.My father owned some ancestral agricultural land in a village which is 20 km away from the municipal limits. After his death the property was transferred in my name in December, 2015. I want to sell it and invest the sale proceeds in some business. Will I have to pay tax on the sale proceeds? If yes, then how can I save some tax?

— Raj Mundi

A.Agricultural land which is situated beyond more than 8 Km (measured aerially) from a municipality or a similar authority is not covered within the definition of term "capital asset", and therefore, the provisions relating to the charge of tax on capital gain on the transfer of a capital asset would not be applicable to an agricultural land which is situated 20 Km away from the municipality or a similar authority. On the basis of the particulars given in the query, the amount of profit arising on the sale of the agricultural land inherited by you from your father would not be taxable. 

Is my son eligible to claim HRA and rent rebate?

Q.I am a senior citizen and am living in my own house. My married son who is working in a private company and is living with me is paying me house rent. I am showing this rental income in my annual return.

My son has two home loans and he is availing benefits under Section 24 for these home loans.

One of his houses is in another state and other one is about 14 km away from my house. His work place is about 6 km away from my house i.e about 20 km from his house which is vacant. My son is including notional rental value of his vacant house in his return.

Now my queries are:

A) Whether my son is entitled for house rent allowance (HRA) and rent rebate?

B) What is the minimum distance in Kms to be eligible to avail rent rebate?

C) Under which Section is the rule for 25 Km mentioned?

 — Surinder

A.Your queries are replied hereunder:

• Your son is entitled to claim deduction for the permissible amount of house rent allowance.
• There is no such requirement that an assessee who owns a residential house can't claim deduction for the house rent allowance granted to him. Deduction for house rent allowance is not permissible where the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on the payment of rent in respect of the residential accommodation occupied by him.
• Provisions relating to exemption of house rent allowance to an employee are contained in Section 10(13A) of the Act. The relevant rule for this purpose is Rule 2A of the Income Tax Rules 1962.

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