Tax Column

Tax Queries By Jayesh Dadia Chartered Accountant

I am a senior citizen of 65 years. I own one residential house where I stay with my wife. A bank has approved reversed mortgage loan against the mortgage of my residential house. Let me know whether there is any capital gain or any other Income Tax implications? 
 

A reversed mortgage loan enables a senior citizen to avail of periodical payment from a lender against the mortgage of his or her house while remaining the owner and occupying the house. The maximum loan amount available is ₹ 75 lakhs. Under this scheme, the loan amount will be disbursed by the lender on a regular monthly term as annuity. Under Section 47(xvi), the transfer of capital asset in a transaction of reversed mortgage under a notified scheme will not amount to transfer and therefore will not be subject to Capital Gain Tax. Thus, even if the transfer of asset is in favour of the lender as mortgage, there will be no Capital Gain Tax implication in your hand. The monthly amount which you receive as annuity or loan will also not be taxable in view of provision of Section 10(43) of the Income Tax Act. Thus, you have no tax implication.
 

I am an individual and a partner in ABC LLP. During the current financial year I have retired from the LLP and received ₹ 2 crore on retirement. My capital amount in the LLP was only ₹ 10 lakhs. What would be the tax implication in my hand on the surplus which I have received on retirement? 
 

Under Section 45(4) of the Income Tax Act, when an individual receives any amount on retirement from an LLP, the difference between the amount due to the partner as per the books and the actual amount paid to the partner would be taxed as capital gain in the hands of the partnership firm or LLP. In your case, the surplus amount is ₹ 1.90 crore and I assume that you were a partner for more than three years. Thus, ₹ 1.90 crore will be taxed as long-term capital gain in the hands of the LLP. Since the amount has already been taxed, the same will not be taxed again.
 

I am an individual and own agricultural land at different locations. I have decided to dispose all the lands. I was told that surplus on sale of agricultural land is not taxable. Is it correct?
 

Taxability on the sale of agricultural land depends on its locations. If any of your land is situated in any area referred to in Item (a) or Item (b) to Sub-Clause (iii) of Clause (14) of Section 2 of the Income Tax Act, then such land is outside the purview of Capital Gain Tax. You have to obtain a certificate from the concerned authorities to show that your land is situated in the area mentioned in Section 2(14) of the Income Tax Act. Any land not situated in the area mentioned above will be subject to Capital Gain Tax. However, the scenario will be different if such land has been used as described below.
 

In case the land has been used by you for agriculture purposes for more than two years on the date of transfer and if you invest the capital gain in the purchase of new agricultural land within a period of two years, such capital gain is exempt. Further, if you don’t want to invest in another agricultural land, then there is an option to invest in a residential house, provided you don’t have more than one residential house on the date of transfer of such agricultural land. Section 54F of the Income Tax Act provides such an option for individuals and HUFs provided the capital gain has arisen on transfer of capital asset other than a residential house. However, you have to fulfil all the conditions mentioned in the Act.
 

I was a tenant in a residential house over a period of 30 years. During the current financial year I have surrendered my tenancy rights and received a consideration of ₹ 20 crore. I have also incurred loss on account of sale of mutual funds, shares etc. which I was holding for more than three years. Can the loss be set off against the consideration received on transfer of tenancy rights? What other options are available to me to reduce my tax liability, if any?
 

Tenancy right is a capital asset under the Income Tax Act and therefore consideration received on transfer of tenancy right is subject to long-term Capital Gain Tax. Under Section 74 of the Income Tax Act, long-term capital loss can be set off against long-term capital gain. Therefore, long-term capital loss incurred by you on transfer of mutual funds and shares can be set off against the capital gain arisen on the transfer of tenancy rights. Further, you can also avail fair market value of tenancy right as on April 1, 2001 as cost, which will further increase by indexation.
 

The difference the indexed cost and consideration received would be the net capital gain, which can be set off against long-term capital loss incurred by you. If any capital gain remains after set off, you can invest the same in a new residential house, provided you don’t have more than one residential house on the date of surrender of tenancy rights. With effect from assessment year 2024-25, the maximum deduction available under Section 54F of the Income Tax Act is ₹ 10 crore. After claiming deduction under Section 54F of the Income Tax, if long-term capital gain still remains, then you are liable to pay long-term Capital Gain Tax at 20 per cent plus applicable surcharge and cess.