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capital gain tax on sale of gifted land


R (aged 71) has a vacant plot measuring 2400 ft in West Chennai which was purchased in 1975.

N (79) his elder brother has a residential property of 2600 sft with built up area of about 1500 sft in East Chennai. It was purchased in 1974 and 50% of the property was settled in favour of his wife L in 2015. They want to demolish the house and construct apartment building there.

Now, if R executes a gift deed of his vacant plot to N and afterwards N sells it and reinvests the proceeds for construction of 4 flats in the premises jointly owned by N and L what will be the implications of Capital Gain Tax for N.

Whether N will get exemption of the construction cost of all the 4 flats or for one flat only?

Whether Settlement deed is preferable to Gift Deed?

What will be the obligations of R as donor under IT Act?

What are the other charges /expenses that may be involved?

 

 
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Retired Manager

For immovable property, capital gains tax is applicable and income tax is not applicable.

 

Therefore, now when R is gifting it to N and N is selling it to a builder (presumably) for construction of Flats and may be part of the consideration a Flat to be constructed besides cash. N has to pay capital gains tax if any. Capital gains tax is calculated on gifted/inherited tax as follows:

 

Value of the immovable property on the day of it was gifted/inherited                 

Value of the immovable property when it is sold

Capital gains tax shall be calculated on the differential amount minus the eligible deductions like taxes etc.

 

This is basically a forum for clarifying on matters of law but not for tax matters. Therefore,, i

t is better you consult a good Tax Consultatnt preferably a Chartered Accountant with full details so that you can be guided properly.

 
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Retired Manager

The capital gains on gifted/inherited property is calculated as follows:

 

(a) Value of the immovable property on the day it was gifted/herited

(b) Sale Consideration received (including value of the Flat if any) whe the above property is sold

 

Capital gains tax shall be calculated on the diferential amount ((b) minus (a)) net of deductions like taxes etc.

 

 
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