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Capital Gains on inherited Property

Girish Chobdar (Articles) (34 Points)

11 July 2011

Hey Folks I have a query regarding Capital gains on Inherited Property. The case is there are two brothers A & B. They have a residential house of their father. So B says that he will Keep the house & will dispose off A with a lumpsum amount. So my question is Whether the amount received by A will be taxable as capital gains. And can he gain exemption by investing in a house(Sec. 54) or by Depositing the money in Capital Gains Account. Can A invest the proceeds in Commercial property or can he only invest in residential property...............

Please reply Asap....

Gud Mrng Gud Day

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9 Replies

kamal kishor sen (STUDENT Rajasthan) (2156 Points)
Replied 11 July 2011

Transfer, in relation to a capital asset, include sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law [sec.2(47)].

Hence, liable to pay capital gain tax.

Anjaly.P.A ( Article( CA Final)) (221 Points)
Replied 11 July 2011

I agree with Kamal.

Anil Kumar Reddy (CA-Final) (280 Points)
Replied 11 July 2011

yes he has to pay tax for the capital gain arrising from the property sale, even though it is being sold to his brother. for the other party, he can invest the proceed as per sec 54

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 11 July 2011

unless the receipent does not execute an instrument of registration for undivided portion of property, in favor of payee for the consideration received, capital gain does not arise.

CA Mukul Mittal (CA in practice) (384 Points)
Replied 21 July 2011

it is the case of division in the family. there shall be mutual consent between A & B and the sale is affected with a Sale Deed, then only Capital Gain Chapter be applicable.......

Girish Chobdar (Articles) (34 Points)
Replied 03 November 2011

Thanks all for your reply. I have to further ask that whether A can invest in Commercial Property or he have to invest in bonds or residential property only?????

Pls reply asap.

regards

Girish Chobdar

CA Tarun Jagdish (8893495263) (153 Points)
Replied 03 November 2011

First thing.. There should be a proper agreement between A and B.. Secondly. Since they are Brothers why cant they take benefit of Gift TAx provisions where in 50000 can be given as gift and still remain Exempt from TAx.. For the remaining amount cost of acquisition will be Nil and CG TAx will come on the entire sale consideration.. This money can be invested and claim exmption u/s 54.

Girish Chobdar (Articles) (34 Points)
Replied 06 December 2011

Thanks again for all the Replies/ Suggestions. Want to Further Ask that

What will be the Cost of Acquisition??

As said above if the Agreement is not executed then Capital Gain will not Arise. Then What will be the Amount recd be. a Income ? Will the Consideration Recd be taxed

Kindly guide

CA P KARTHIKA (Chartered Accountant) (715 Points)
Replied 06 December 2011

Consideration received by Mr. A for extinguishing his right on the property is taxable as a capital gain. Let me know anything you could also do substantiate regarding COA!