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Ltcg on an inherited property

Harsha (Software professional) (214 Points)

21 February 2016

Dear Experts,

My father got a plot way back in 1970's. He died in 2008 and the property got transferred to to my mother's name in 2010. Now she has also demised. So when we (right-holders) sell, what would be considered as initial cost?

Is it the government declared FMV of the property of 2010 or the cost of acquisition of 1970 + indentatation on 1981 basis?

Regards,

Harsha Vardhana R

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4 Replies

Jayesh NP (Tax Practitioner) (154 Points)
Replied 21 February 2016

Cost of acquisition in your case is indexed cost of acquisition as on 1981. Sec 49(1) of the Income Tax Act is given below for your reference:-

Cost with reference to certain modes of acquisition.

49. (1) Where the capital asset became the property of the assessee—

(i) on any distribution of assets on the total or partial partition of a Hindu undivided family;

(ii) under a gift or will;

(iii) (a) by succession, inheritance or devolution, or

(b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or

(d) under a transfer to a revocable or an irrevocable trust, or

(e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) 98[or clause (viaa) or clause (vica) or clause (vicb)] or clause (xiii) or clause (xiiib) or clause (xiv) of section 47;

(iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969,

the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.

Explanation.—In this sub-section the expression "previous owner of the property" in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub-section.

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CA Prateek Garg (CA in Practice) (1444 Points)
Replied 21 February 2016

Cost of acquisition shall be any of the following at your option

-> Cost of acquisition in the hands of your father

-> FMV of property as on 1-4-1981

Indexation benefit shall be avilable in both cases.

Thanks & Regards

CA Prateek Garg

Mob: +91 87 4393 6809 | EMail: gargtaxcon @ gmail.com

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Mukesh Kuriyal (Advocate) (2216 Points)
Replied 21 February 2016

First of all is it agricultural land or not.. if agriculture then no capital gains if you sell the plot.. If not then since you got the plot through inherited so the Circle Rate of 01/04/1981 will be used in case of capital gains.But you can show the improvement in that plot?..

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Harsha (Software professional) (214 Points)
Replied 21 February 2016

Thank you experts - as my mother became the owner due to other copercerners' consent, she didn't become a 'new' owner. A kind of 'inheritance + gift' type of ownership. Now after her demise, we children have to to still consider our father as the 'previous' owner.

The property is a non-agricultural residential plot alloted by an official body.

I believe I can add indexed costs of house built in late 80's and a major addition of 2005 for the total cost of the property.

In India, we hardly get receipts for the construction costs etc. It is almost always a calculated guess. How does the IT department scrutinize it. Is it just the discretory power of the AO?

Regards,

Harsha Vardhana R