My father (60) bought a flat in Mumbai in 1985. He desires to switch it in my title and I will likely be sending him some cash in alternate (lower than the market worth of the flat). Can we purchase a authorities bond or a brand new property inside three years to keep away from capital positive factors tax?
In case your father transfers the flat to you, as a sale, the resultant acquire/loss can be taxable in his palms as long-term capital positive factors/loss (LTCG/LTCL), because the flat has been held for greater than 24 months. LTCG is calculated because the distinction between web sale consideration (precise sale consideration much less brokerage bills) and the listed price of acquisition and enchancment. Nonetheless, if the precise sale consideration is decrease than the stamp obligation worth by greater than 5%, the stamp obligation worth can be thought to be deemed sale consideration, for the aim of calculating LTCG. Your father may also be required to deduct 1% tax of precise sale consideration as TDS and deposit it with Indian income authorities, if the precise sale consideration is ₹50 lakh or extra.
An exemption from LTCG might be sought underneath Part 54 of the Earnings-tax Act, 1961 by re-investing it in a brand new residential home in India, inside one yr prior or two years after the date of switch (in case of buy) or inside three years (in case of building). If the price of the brand new home is greater than capital positive factors, then entire of LTCG shall be exempt. In any other case, LTCG will likely be exempt as much as the price of the brand new home. An exemption will also be claimed underneath Part 54EC by investing the capital positive factors in notified securities. You too can make investments the web consideration in fairness shares of an eligible start-up underneath Part 54GB to say an exemption. All these exemptions are topic to satisfaction of different circumstances prescribed.
Nonetheless, in case your father (being a specified relative) transfers the property to you as a present or underneath a Will, the transaction of reward/inheritance itself won’t have any tax implications for each of you. Any cash transferred by you to your father as a present, wouldn’t give rise to any tax implications on the time of switch. The revenue your father earns from subsequent investments will likely be taxed in his palms.
Typically, reward of an immovable property might be effected by a registered reward deed together with cost of relevant stamp obligation, relying on the state the place the property is located. Additionally, reward of cash needs to be documented legally viz. a reward deed. Nonetheless, it’s best to search authorized opinion on the suitable documentation and stamp obligation implications. The onus of proving that the switch of flat and cash between your father and you’re presents/irrevocable transfers can be on you and your father and there needs to be sturdy documentation to assist the declare.
Parizad Sirwalla is accomplice and head, international mobility companies, tax, KPMG in India
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