Business   

Capital gains on sale of inherited property

The sale of inherited property, since held as investment, would attract liability for tax on capital gains. Though the reader has got the property from his late mother by way of inheritance only in April, 2004, he is deemed to be the owner even for the period held by his mother as well under Sec. 2(42A) of the Income-tax Act, 1961. For property acquired before April 1, 1981, an assessee has an option to adopt the market value as on that date so that even where cost details are available in respect of old properties, the option can be exercised.

The reader should, therefore, estimate the market value as on April 1, 1981. This is best done with the help of an approved valuer so as to carry conviction with the Income-tax Department.

The law would consider April 1, 1981 as the base year for indexation at 100. Since the property is sold in financial year 2007-08, the index number for that year should be taken, which is 551. The estimated cost as on April 1, 1981 can be multiplied by 5.51 to arrive at the cost deductible from the net sale price to arrive at taxable capital gains.

Since the property is sold for an amount with liability likely to be significant, the reader should consult a professional not only for the method of calculation but also for the concessions available under the Act.

The requirements for such concessions are to be complied within the specified time limit fixed by the statute. The letter received from the reader is a typical one received from time to time.

It is unsafe for a person to tackle tax problems involving such liabilities on the basis of newspaper advice addressed in general terms. Self-medication is inadvisable for serious ailments.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Rural indebtedness: the burning issue
Innovation — the new buzzword in IT
Highlights of the report
Capital gains on sale of inherited property
Plight of insurance agents
PVS Apartments comes to Kochi
Doha Bank ties up with Select Securities
Toddy-based soft drink project yet to take off
Lions to hold shopping festival

Copyright © 2007, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu