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Tax treatment for income from long term lease transfer

Iam Singho (none) (91 Points)

14 September 2010

Mr. A has a property which was acquired on lease for 99 years in 1980 for Rs. 10,000.

In 2010, he transfers his rights to the remainder period of the lease (69 years in thsi case) to Mr. B.

Mr. B pays Mr. A Rs. 1,00,000 for taking over lease of the property.

My question is how is this amount of Rs. 1,00,000 taxes in the hands of A.

Since a lease greater than 12 years means an ownership change, can we treat this income as income from sell of house property and avail the usual tax benefits ?

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6 Replies

sachin kakkar (CA) (188 Points)
Replied 25 September 2010

yup u r right....

Member (Management) (325 Points)
Replied 26 September 2010

Taxable as LTCG. Benefit of 54F can be availed of.

A.Barli (Article) (216 Points)
Replied 30 August 2011

"Since a lease greater than 12 years means an ownership change"

Please clarify..

(Guest)

Rs. 1,00,0000 taxable under the head LTCG. If Mr. B let oout this property then rent is charged under the head HP since Mr. B shall be treated as deemed owner.

This kind of property is transferred through POA

thanks

https://taxbykk.blogspot.com/

MANISH (BUSINESS) (31 Points)
Replied 22 December 2011

Taking this discussion forward- What would be the tax treatment in case he has developed a building on the lease hold land and has claimed YoY depreciation on it. Will it amount to LTCG and avail benefits of Sec.54 or it will be normal income from Business & Profession.

Best Regards Manish

Z ( ) (2960 Points)
Replied 22 December 2011

"has claimed YoY depreciation on it."

Means the asset was in use for business or profession

Cap gain on Property of business and profession accrues when the block of asset is sold.

If the block of asset is sold then CG shall arise

Only building is liable for depriciation, If tenant incurs capital expense on the building then the same is allowed as per explanation 1 of S. 32(1) . But since in this case property is letout for more than 12 years therefore the assesse shall be deemed owner and consequently depriciation can be claimed by owner u/s 32(1)(ii)

Since the property was in use by business/profession it can not be deemed to be a residential house property and hence provisions of sec 54 shall not apply. Nonetheless there is transfer of capital asset liable to tax gain . However exemption can be availed u/s 54EC . Exemption u/s 54F is available to individual and HUFs only