Buy bonds to save tax on capital gains

SC Vasudeva

Q. My father purchased a plot of 202 sq yd on November 25, 1964, with a maliat wasika (cost) Rs 1,000. He constructed a house on it for the family. He wrote a registered will on December 10, 2003, in my favour.  He died on April 18, 2011. On the basis of the registered will, I registered the ownership on July 20, 2011, in the city municipal records. Later, I transferred (in tehsil wasika) the ownership to my younger son on January 10, 2018. On the basis of circular rate, the house value is Rs 6,33,500. Now, my son is selling this house at Rs 25 lakh. All payment will be taken by cheque. How the transaction can be shown in tax return for FY 2018-19 (AY 2019-20)?  Which ITR Form is applicable for it? What will be the tax liability on the transaction? And how can I save tax? Can Rs 25 lakh be adjusted against the old house purchased in August 2017 at Chandigarh (before 1 year from the date of sale.)?—S Singh

A. Your queries are replied hereunder:-

(a) The amount of capital gain earned on the sale of house will be shown in the income-tax return (ITR) under head “Capital Gain”.  The details specified in the return will have to be filled in.  The applicable ITR Form for the assessment year 2019-20 has not been notified so far.

(b) It is not possible to compute tax liability since the fair market value of the house as on April 1, 2001, has not been provided by you.  This is required so as to allow the benefit of indexation which indexed cost will be deductible from the full value of consideration for ascertaining the amount of capital gain.

(c) Your son can save tax payable on the amount of capital gain by utilising the amount of capital gain towards the purchase or construction of another residential house in India. The purchase can be made within one year before or two years after the date of sale of the residential house.  The construction has to be completed within three years after the date of sale of the residential house. Your son can also invest the amount of capital gain in tax-saving bonds to the extent of Rs 50 lakh. The bonds which would be issued after April 1, 2018, will have a lock-in period of five years.  This is in accordance with amended provisions of Section 54EC of the Income-tax Act 1961 (The Act). Such bonds normally carry interest approximately at 6% per annum. The residential house should be purchased in the name of your son and should not be in joint name so as to avoid litigation.

(d) The amount of tax on capital gain can be saved if the old house has been purchased in Chandigarh is in the name of your son. The return for the assessment year 2019-20 can be filed by July 31, 2019.

Q: My daughter had opened a PPF account in a post office in 2003.  She went to the US and became its citizen.  She has been depositing money, through me, in the PPF account regularly. The account has matured in 2018. The post office wants Aadhaar and PAN for disbursing the maturity amount. How can the payment be availed of in the absence of Aadhaar and PAN? Is there any notification regarding this?  —SP Singal  

A. Non-Resident Indian is not required to obtain an Aadhaar card.  This has been clarified by the government and a PAN card should be sufficient to enable you to encash the deposit of the Public Provident Fund account.  It would be better if you can request the post office to directly transfer the amount to her NRO account maintained with a bank.

Q: I, 74, am a Central Government pensioner.  My earnings and savings during financial year 2017-18 are as under:-

EARNINGS

From pension Rs 6,20,730

Rental income Rs 2,17,200 (without 

from housing deducting 30%)

Income from Rs 1,24,300

interests

SAVINGS

Public Provident Rs 1,50,000

Fund A/c

Calculate my tax liability for the assessment year 2018-19.  Also, clarify whether a rebate of Rs 40,000 is allowed to me.

—KS Dhaul

A. Your total income after allowing deduction for the deposit of Rs 1,50,000 in Public Provident Fund account, works out  at Rs 7,47,070.  The said total income has been computed without allowing relief for house tax which might have paid in respect of the house from which rental of Rs 2,17,200 has been earned. Presuming that the interest income includes interest on savings bank to the extent of Rs 10,000, the aforesaid total income will be reduced to Rs 7,37,070.  Tax payable on the said amount for assessment year 2018-19 would be Rs 59,136.