Your questions: Income tax | House held for more than two years classified as long-term fixed asset

The cost of acquisition and improvement is indexed in the case of long-term fixed assets to take into account inflation over the years.

By Chirag Nangia

I had bought a property jointly with my father in 1987. We then invested Rs 1.6 lakh each. My father’s will gave his 50% share to my mother. My mother sold her 50% share to me in October last year for Rs 25 lakh. I had another property which was sold in 2021 and I used the capital gains to buy the 50% share of the property my mother sold to me. I now intend to sell the apartment at Rs 90 lakh and purchase a new property with the proceeds. How to avoid capital gains tax?
—C Srinivas

For tax purposes, real estate is classified as a long-term capital asset if it is held for a period longer than 24 months, otherwise it is considered a short-term capital asset. In order to calculate the capital gains, the cost of acquisition, the cost of improvement and the expenses (incurred entirely and exclusively in connection with the transfer) must be deducted from the sale price. The cost of acquisition and improvement is indexed in the case of long-term fixed assets to take into account inflation over the years. The Long Term Capital Gains Tax (LTCG) is 20% (including surcharge and disposal, if applicable). Short-term capital gains will be taxed at the applicable slab rates.

In addition, LTCG’s tax exemption on the transfer of residential property is permitted if you invest the capital gains either for the purchase of another residential property within one year before or two years after the date of transfer, or in the construction of another residential property. within three years from the date of transfer.

My mother, aged 75, took out a health card with the DGHS and paid Rs 78,000 this year. Is this amount eligible for an exemption under Section 80D?
—Girish Keswani

Section 80D provides for the deduction of the amount paid as a health insurance premium or any contribution made to the CGHS scheme or any other scheme notified by the central government in respect thereof or any payment made under a preventive health check. In addition, the elderly can claim a deduction of up to Rs 50,000 paid on the medical expenses they have incurred, if no amount has been paid as health insurance premium. Since the payment made by your mother does not fall into any of the above categories, the expenses cannot be deducted under section 80D.

The screenwriter is the director, Nangia Andersen India. Send your questions to [email protected]

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