Inherited house may involve taxation | india | Hindustan Times
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Inherited house may involve taxation

If you sell the inherited house before March 2012, the period of holding of the house shall include the period for which your father had held it and, therefore, the property would qualify as a long-term capital asset

india Updated: Jun 17, 2011 22:46 IST

I am the only child and have inherited a house, bought in 1985, from my father. Its current value is around `50 lakh. What will be the tax implications if I sell it next year?
— Mrinal Gupta

If you sell the inherited house before March 2012, the period of holding of the house shall include the period for which your father had held it and, therefore, the property would qualify as a long-term capital asset (total period of holding exceeds three years). Accordingly, the long-term capital gains (LTCG) will be taxable in your hands.

According to section 112 of the Income-Tax Act, capital gains tax on the sale of such long-term capital asset shall be levied at 20% on the total value of LTCG. This shall be calculated as the difference between the full value of consideration as reduced by expenditure incurred wholly and exclusively in connection with transfer; indexed cost of acquisition (in your case, the indexed cost of acquisition of the original owner, your father); and indexed cost of improvement.

As per section 54, LTCG on the sale of a house shall be exempt if the entire gain is reinvested within a specified period to purchase or construct another residential house.

To avail exemption, the unutilised amount, if any, must be deposited in a Capital Gain Account Scheme before the due date of filing returns of the year in which the original transfer took place, to be utilised within the stipulated timeframe for specified purposes.

Nitin Baijal,
director, BMR Advisors