Taxation For Property Transactions

Read on to learn more about the provisions under the Income Tax Act, 1961 for deductions on the purchase of new residential property, capital gains made on property transactions and on a residential house that is ‘deemed let-out property’.

Q 1) I am self-employed and have incurred a business loss of Rs 230000 during the financial year 2012-13. During the year, I have also shifted my residence from town side to the distant suburbs, after selling my tenanted flat for Rs 90 lakh [I had been staying in the said flat for over 30 years]. I had not paid any price for the purchase of this flat.

Now, I have purchased a new flat for Rs 7600000. After utilising Rs 6 lakh for the purchase of furniture, the balance money has been deposited in a bank account. Will I be able to set off my business loss against my long-term capital gains? What will be my capital gains tax liability, assuming I have no other income?

- Mangesh Rasal

As this was a tenanted flat for which there was no acquisition cost, the cost of acquisition is to be taken as nil. Consequently, the Indexed Cost of Acquisition will also be nil. Hence, the entire sale price will be treated as a long-term capital gain.

The investment in the purchase of a new flat will be eligible for deduction u/s 54 of the Income Tax Act, 1961. However, the cost of furniture will not be admissible as deduction. Further, you will be able to set off the business loss of Rs 230000. Thus, assuming that there is no other income (also assuming you are not a senior citizen) your net taxable LTCG for the year will be Rs 261162.

You may avail an additional exemption u/s 54EC by investing, say Rs 500000 in Capital Gains Bonds issued by the National Highway Authority of India or the Rural Electrification Corporation of India. You may wish to consider this, as it will further reduce your tax liability by about Rs 103000.

Q 2) I own two residential houses, one in Mumbai and the other in Pune. Both the houses are in my name and my wife is a joint holder. Though I live in the Mumbai flat, I use the other flat on weekends or holidays. Neither of the flats is let out. I am told that if a person has two houses, he/she has to pay tax on one of the houses even though it is not rented out. Is this true? Please clarify.

- Yezdi Katgara

Both the residential house properties are jointly held by you and your wife. However, you have not clarified on whether your wife has contributed towards the purchase of the said houses. Further, if the second house would have been purchased in your wife’s name with you as the joint owner, both of you could have claimed each of the houses as self-occupied property.

However, if your wife has not contributed towards the purchase of the said residential houses and her name is included as joint holder only for convenience, then the other residential house becomes ‘deemed let-out property’ by the fiction of law and will be taxable in your hands.

Q 3) I am a senior citizen aged 80 years and have some amount in fixed deposits in a bank. In the current year, my income from interest is Rs 461240. I have no other income. Can I submit Form 15H (for non-deduction of tax at source) from my interest income for AY 2013-14?

- Madhukar Lolayekar

As you have attained the age of 80, you will be categorised as very senior citizen and the basic exemption that you are entitled is Rs 500000. Thus, you do not have taxable income for the year. You can submit Form 15H to your bankers for non-deduction at source.

As regards the filling up of Form 15H, we had stated the procedure in our previous issue. However, we are reproducing the same for your ready reference hereinbelow:

The Department of Income Tax has introduced a new Form 15H/15G for non-deduction of tax at source by the payer. The additional details are required in order that your Assessing Officer (AO) is informed of your non-deduction. You can find these details on the Income Tax department web page: http://incometaxindia.gov.in/home.asp.

On the e-filing home page, you can get the details of the jurisdiction of your AO by clicking on ‘Know Jurisdiction AO’. You will be required to enter your Permanent Account Number (PAN) and the image code as directed and then click the Submit button. This will provide you with the details you need.