long term capital gains - inherited & relinquished property

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 July 2015 Could you kindly help understand the Long Term Capital Gains (LTCG) implications for below scenario.

Below is the sequence of events.
1. 05OCT1983 - FATHER buys the real estate plot-property in Karnataka state and has Possession certificate. Spends INR30,000.00 to acquire this property. This amount is mentioned in the sale deed.

2. 30JAN1991 - FATHER Constructs home on the plot. Enjoys the property along with his family for 20 years. Spends approx INR 15 Lakhs to build the property and there after maintain it over the next 20 years. There are no records to show this spend.

3. 30APR2012 - FATHER passes away leaving behind the property to three heirs. WIDOW, SON & DAUGHTER.

4. 23OCT2012 - Property is legally transferred to 3 heirs and KHATA certificate issued to 3 heirs.

5. 14JUN2013 - WIDOW & DAUGHTER Relinquish the property to SON via legal registered Relinquishment Deed. SON is now absolute owner of the property. There is no other compensatory agreement in records for this parting of the property by WIDOW and DAUGHTER (worked out on personal basis).

6. 30AUG2015 - SON decide to sell the property for INR 3 Cr. (in less than 36 months from becoming absolute owner)

QUESTIONS:

A. If SON decide to sell in less than 36 months of becoming absolute owner; will this be considered as 'Long Term Capital Gains' for SON? OR should he wait for full 36 months before making the sale to benefit from Long Term Capital Gains Tax?

B. Since this is inherited and then relinquished; is there any specific clause that applies ?

C. How is the net Long Term Capital Gain computed particularly when the proof for amount spent (on the property) is not available and what will be the taxable amount to SON?

D. Since this is inherited by heirs and then relinquished, will the SON enjoy LGCT only on 1/3 the amount from sale proceed and has to pay tax on remaining amount. Some opine this way; we have mixed inputs on this one.?

E. Who needs to authorize the net LGCT computation for it to be acceptable by Income Tax Department?

F. With this sale proceed, will there be any income tax implication on WIDOW and DAUGHTER?

CS Advocate Abhishek Goyal

CS Advocate Abhishek Goyal (Expert)
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29 July 2015 A. Since the property is inherited, period of holding shall be reckoned from the date of holding by previous owner, so in this case the period of holding shall be more than 36 months.

B. Not in my opinion.

C. Indexation will be separately available for plot and house since plot was purchased in 1983 and house was constructed in 1991.

D. In my opinion he will enjoy 100% sale proceeds since after relinquishment he is now absolute owner.

F. No tax implications for widow and daughter even though relinquishment is a capital asset transfer but since they have transferred their rights in the property without any consideration there will be no capital gains implications from them.

Querist : Anonymous

Querist : Anonymous (Querist)

29 July 2015 Many Thanks Abhishek for super quick response.