How is the sale of gifted property taxed?

My father gifted me a house worth 54.5 lakh in June 2017. I have paid 4.5 lakh as stamp duty on the same. I am planning to sell the house for 2 crore in the current financial year. How is capital gain computed on this and how much tax should I pay.

—Name withheld on request

Any immovable property, including a house, received by an individual taxpayer during any financial year (FY) without consideration, the stamp duty value of which exceeds 50,000, is not taxable if it is received from a relative which includes, among others, the father of an individual. Therefore, there should not be any tax implications on such gift transaction.

Any subsequent capital gain from sale of the house shall be taxable. If the property is held for more than 24 months from the acquisition date, then the gains are termed as long-term capital gains (LTCG). In case of property received as gift, the period of holding is reckoned from the date of its purchase by the acquirer, other than by way of gift. If the property has been originally acquired by your father, the period of holding will be reckoned from such purchase date. As the property has been held for over 24 months, the gains shall be termed as LTCG and taxable at the rate of 20% (plus surcharge and cess).

LTCG shall be computed as the net sale proceeds (i.e. after deduction of sales expenses) less cost of acquisition and improvement. For this purpose, the cost of acquisition shall be the cost at which such house was originally acquired, as increased by any cost of improvement made subsequently. Hence, the cost of original purchase (previous owner) shall be considered as the cost of acquisition while computing LTCG. Further, the cost of acquisition and improvement should be adjusted by applying the cost inflation index as prescribed. In case, asset was originally acquired before 1 April 2001, calculation of cost of acquisition and cost of improvement will be slightly different.

Please note that the LTCG can be claimed as exempt from tax by reinvesting in certain assets as per prescribed mechanism. Seeking professional guidance for LTCG computation and tax planning can be helpful.

Aditya Goyal is a chartered accountant based out of Bengaluru.

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Updated: 28 Aug 2023, 10:56 PM IST

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