I have a freehold society flat in Delhi, which I bought around 20 years ago. Due to personal reasons, I wish to sell this off and purchase a new property. I will pay for the difference in price in the old and new property by selling some shares. Please advise on the capital gains on account of the proceeds from the sale of the property and the shares.
As the residential house was held for more than 24 months, the asset shall be considered a long-term capital asset and the gains arising out of the sale would be taxable as long-term capital gains (LTCG).
Where a capital asset is purchased before 1 April 2001, the cost of such an asset for the purpose of calculating LTCG from its sale can be substituted with the fair market value (FMV) of the asset as on 1 April 2001, at the option of the assessee.
You should, therefore, obtain a valuation of the asset as on 1 April 2001 and use either such FMV or the actual purchase cost at your discretion. While there is no express requirement to obtain an FMV certificate from a documentation perspective, one should consider obtaining such a certificate from a registered valuer. The indexed cost of acquisition of the asset in your case would be calculated as the cost of acquisition or FMV as on 1 April 2001/cost inflation index (CII) of FY2001-02 (i.e. 100) x CII of year of sale (the CII prescribed for FY20 is 289). Accordingly, capital gains on the sale of a house can be computed as the difference between the net sale proceeds (sale proceeds less brokerage expenses) and the indexed cost of acquisition. The tax is payable at 20% (plus applicable surcharge and cess) on the resulting LTCG. We, however, understand that you propose to reinvest the entire sale proceeds, and thereby the entire capital gains, in a new residential house property in India. Accordingly, as per the provisions of the Income-tax Act, LTCG on the sale of the house shall be exempt from the tax subject to the prescribed conditions and timelines.
Further, the sale of shares will also be taxable as capital gains depending on the type of shares (listed/unlisted) and the holding period of the shares as per the provisions of the Act. In case the gains from the sale of shares are long term, a rollover exemption can be evaluated towards the investment of the net sale consideration in the new residential house property in India, subject to the prescribed conditions and timelines.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at [email protected]