The capital loss on the sale of a house can be offset by a capital gain for 8 years
I sold my first property and reinvested the amount in the purchase of another property. I bought my second property in 2016. Will the long-term capital gain apply for 24 months or 36 months? Can I save on taxes by investing in bonds now? What is the impact of the sale of my first property on the second? Here are the details: first property purchased in 2010 for Rs55 lakh and sold for Rs97 lakh in 2016; bought a second property in 2016 for Rs1.4 crore and plan to sell it within 24-36 months.
Gains or losses resulting from the sale of a fixed asset are capital gains or losses. Gains are taxable in the year the transfer of assets takes place. And in the event of a capital loss, it can be deferred for compensation with possible future capital gains for a period of 8 years.
Assets held for more than 36 months are considered fixed assets. However, from fiscal year (FY) 2017-18, the 36-month period has been reduced to 24 months for real estate (land, buildings and houses).
Some assets are considered long-term if held for more than 12 months, for example, listed or preferred stocks, securities, units of UTI, equity-focused mutual funds and bonds zero coupon.
Therefore, with this amendment, your new property will become long term in 2018 once it completes 24 months. And being long-term, it will also be eligible for indexation benefits as well as reduced tax rates.
There is an exemption from long-term capital gains tax provided the capital gains are reinvested in capital gains bonds under Article 54EC of the Tax Act on income. These bonds are issued by the National Highway Authority of India (NHAI) and the Rural Electrification Corporation (REC). These bonds have a fixed term of 3 years and do not include any redemption or exit options before maturity.
You must invest in these bonds within 6 months of the realization of the capital gains or before the due date of the tax return, whichever occurs first. You cannot invest in these bonds now for the capital gains exemption because there is no asset transfer from the new property and the capital gains are not realized. This can only be done after an asset transfer.
The way you reinvested the proceeds from the sale of your first property in the second property (and the investable amount being much higher than the capital gains of the first property), there was no impact of a capital gain. on the sale of your first property under section 54.
This advantage of reducing your capital gains tax can again be used by reinvesting the capital gains in another residential property.
My son is an NRI. He is continuing his PPF account in India (which he opened when he was not an NRI). Does he need to bind Aadhaar, which is now also mandatory for the PPF account?
—Name hidden on request
It is not mandatory for a Non-Resident Indian (NRI) to have an Aadhaar card. And since your son’s Public Provident Fund (PPF) account was opened while he was a resident of India, he can continue to hold the PPF until it expires. However, the PPF account cannot be extended beyond its expiration period as NRIs are not allowed to open or extend a PPF account. And being a non-resident, he does not have to link the PPF account.
However, the same should be notified to the bank or post office that your son’s residential status has changed from Indian resident to NRI.
I have a question regarding the closure of my father’s Hindu Undivided Family (HUF), which was established in 1960. Our family includes my mother and four sisters, who were all married at the end of 1975. My father is passed away in 1989 and my mother became the karta. She later passed away in 2013 and I am the karta now. Can I just shut down the HUF since, according to the recent Supreme Court ruling, this HUF falls under old laws which would not include any of the married sisters? Can I just send a statement to IT and hand over the HUF PAN card?
—Name hidden on request
You can shut down the HUF by partitioning its assets. However, there can be no partial division of property.
You can prepare a deed of partition and even have it duly registered and stamped and after that the HUF will end.
You can also write to the income tax officer in whose jurisdiction the HUF taxes are deposited and mention that the HUF is in the process of being dissolved, resulting in the return of the PAN card. Attach a copy of the deed that indicates that the HUF is in the process of being dissolved, as well as an acknowledgment of receipt of the income statement filed before the HUF shutdown.
Surya Bhatia is Managing Partner of Asset Managers
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