Based on the available facts, it is assumed that you are a senior citizen. You bought a residential house property in India in 1998, which you plan to sell now. As the property has been held for more than two years, the same would qualify as a long-term capital asset (LTCA), and any income/loss arising from the sale of such LTCA shall be calculated as follows:
* As per the provisions of the Income-tax (I-T) Act 1961, if the actual sale consideration is lower than the stamp duty value by more than 10%, the stamp duty value would be regarded as the deemed sale consideration, for the purpose of calculating such LTCG/L.
** As per the provisions of the I-T Act 1961, where the LTCA becomes the property of the taxpayer before 1 April 2001, the cost of acquisition (CoA) shall be the actual cost of the property or fair market value (FMV) as on 1 April 2001 (not exceeding stamp duty value of the property). Since the property is an LTCA, you are eligible for the benefit of adjusting the CoA based on the applicable Cost Inflation Index (CII). Further, the cost shall be increased for any expenses incurred for the improvement of the asset (assumed to be nil in the instant case). Indexed CoA would be calculated by applying the following formula:
Indexed CoA equals CoA multiplied by CII for the financial year (FY) in which asset is sold, divided by CII for the year in which property was first held or FY2001-02 (whichever is later)
It is to be noted that LTCG income would be taxable as per the provisions of section 112 of the Act, i.e., at 20% plus applicable surcharge and education cess.
Assuming you are a resident in India and your other incomes are below ₹3 lakh (i.e. the maximum exemption limits for senior citizens up to 80 years), the benefit of the unexhausted exemption limit shall be allowed against the LTCG and the balance gain shall be subject to tax.
Further, you may claim the following deductions from LTCG income and thereby reduce the tax outgo (if any), subject to the prescribed conditions and timelines:
— Under section 54 of the Act, by investing the LTCG in another residential house in India;
— Under section 54EC of the Act, by investing the LTCG in specified notified bonds; and
— Under section 54GB of the Act, by investing net consideration in equity shares of an eligible start-up.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.