Land held for 36 months is considered long-term fixed assets

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I got about 50 lakh from the sale of ancestral land (no farmland) that I owned. I am 60 years old. I want to know if this amount will be taxed? I intend to distribute the money among my children. Will they be taxed?

– Rajendra Saxena

Gains, if any, calculated in accordance with the Income Tax Act, are taxable as capital gains. To determine the capital gains tax rate, you need to see whether the land you own is considered long-term or short-term capital property. If the land is held for more than 36 months from the date of acquisition, it must be classified as a long-term asset; if it is held for 36 months or less from the date of acquisition, it would be short-term capital. In the event of inheritance, the holding period runs from the date of purchase of the property by the owner, who has effectively acquired the land other than by inheritance or donation.

Since this is ancestral land, it is unlikely that the land could be classified as a short-term fixed asset and attract the short-term capital gains tax (STCG). Therefore, we proceeded on the assumption that the land has been held for at least 36 months. Accordingly, long-term capital gains (LTCG) should be calculated as the difference between the sale proceeds less incidental costs incurred in connection with the sale of the land and the purchase cost and the cost of improvement, if applicable, carried out after the purchase of the land. .

In the event of inheritance, the acquisition costs are the costs for which the former owner who acquired the land other than by inheritance or donation plus the costs of improvements made subsequently.

In the event that the land was acquired by the original owner before April 1, 1981, you have the option of taking the actual acquisition cost or the fair market value (FMV) of the land on April 1, 1981. In addition, this cost will be increased using the applicable cost inflation index notified by the income tax service with respect to the base year in which the land was first purchased, the financial year (EF) during which the cost of improvement, if any, was made and the exercise of selling the land respectively.

A LTCG tax exemption can be granted by reinvesting the net proceeds from the sale in a new residential property within the specified time frames (within one year from the date of sale or two years from the date sale or within three years for a property under construction) in accordance with Section 54F of the Act or LTCG in specified bonds issued by the National Highways Authority of India or Rural Electric Corp. Ltd under Section 54EC of the Law, subject to a three-year blocking period.

We understand that you are likely to distribute the proceeds of the sale to your children and not invest in the prescribed channels mentioned above. Therefore, the entire LTCG will be taxable at a flat rate of 20.6% (including education tax) being the rate applicable to LTCG.

As you can be considered a senior, if your income is less than the maximum non-taxable amount (currently 2.5 lakh for seniors for FY13) then this shortfall can be adjusted against LTCG and only the balance LTCG could be taxed at 20.6%. Money paid to children is not allowed as a deduction and the capital gain will be calculated on the gross proceeds of the sale.

Please note that if the land has been held for 36 months or less from the date of acquisition, the entire STCG without indexation will be taxable at the applicable slab income tax rate.

In addition, if the sale of the land results in a long-term capital loss or a short-term capital loss, this could be deducted from LTCG and / or STCG, as the case may be, in accordance with the netting provisions specified under of the law. .

Another important aspect to see is the tax implications of distributing money into the hands of your children. In accordance with section 56 of the Act, all money received by an individual from any person during the fiscal year without consideration, the total value of which exceeds 50,000, is taxable under the heading “income from other sources. “. However, an exemption is available if this money is received from a relative, which includes among other things, any direct ascendant or descendant of the individual, therefore the distribution in cash will not result in any tax consequences in the hands of the individual. your children.

You can review the documentation / registration and the applicability of the stamp duty in relation to the gift transaction.

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