Understanding the calculation of capital gains on inherited property: key considerations when selling a plot of land

My late father bought a piece of land in 1999. The exact price he paid is unknown. He gifted it to me in August 2022 under a duly executed deed of gift on which the proper stamp duty was paid. Now I am planning to sell this plot for two crore rupees in November 2024. Can you help me understand how to calculate capital gains? Will indexation be carried out from 1999 or from 2022?

In the case of capital assets received by gift or inheritance, the value for the purposes of calculating capital gains should be taken as the amount paid by the original owner who acquired them for consideration. Moreover, if the asset was purchased before April 1, 2001, the seller may take the fair market value of the asset on April 1, 2001 as the purchase price. Since the site in question was purchased before April 1, 2001, you can take the fair market value of the site as of April 1, 2001 as cost. To determine the fair market value of a property, you will need to obtain an appraisal report from a registered appraiser.

The fair market value, as determined by the valuer’s report, cannot under any circumstances be greater than the stamp duty value as on April 1, 2001.

Additionally, to calculate the holding period, the period starts from the date it was purchased for reimbursement. Therefore, your holding period will start from 1999 and the capital gain will be treated as long-term capital gain since the cumulative holding period is more than 24 months.

Although the recent Budget removed indexation relief for calculating long-term capital gains, a resident individual and the HUF can still pay tax on long-term capital gains arising on the sale of land or buildings at a rate below 12.50%. for long-term capital gains calculated without indexation, or at a rate of 20% for long-term capital gains calculated with indexation.

How to calculate the tax on donated land

Although the law allows you to count the costs incurred by the previous owner as the cost of acquisition, as well as the period of ownership of the previous owners in case the asset was received as a gift, it does not expressly provide that the indexation benefit will also be available. from the date the paid previous owner purchased it. However, strictly speaking, you can take the fair market value of the property as of April 1, 2001 as cost, but the indexation benefit will be available to you from August 20122, if you follow the wording of the provisions. However, some High Courts like the Gujarat High Court, the Delhi High Court and the Bombay High Court have held that since the price previously paid by the owner has to be replaced, indexation should also be allowed from the date of purchase. by the previous owner or April 1, 2001, if fair market value is accepted as of that date.

Please note that you do not have indexation relief available for calculating capital gains to avail the exemption under sections 54F and 54EC in respect of land.

Read all our personal finance stories here.

Balwant Jain is a tax and investment expert and can be reached at [email protected] and @jainbalwant on his X handle.