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Capital Gains Tax in India on Ancestral Property

Updated on November 1, 2010

Question: Do capital gains tax applies to ancestral property? One of my friends has sold his ancestral house, but he is going to invest that money in buying a new property.

Answer: Yes Pankaj, one of my colleagues sold his ancestral house recently and is going to invest the money for purchasing a builder flat in Greater Noida, a hot property location in NCR. Now according to what I have understood from his story and consulting with him and my CA regarding this is that in India, capital gains tax would apply to ancestral property too. If the current owner has acquired the property, i.e., seller through a Will or by Inheritance, then the cost and date of purchase of the original owner (his ancestors) would be considered.

If the property had been originally purchased before 1.4.1981, then the fair market value as on 1/4/1981 (as certified by an Indian Government Approved Valuer would be considered as cost of that property.

Also, it would be further indexed as per Cost Inflation Index Numbers issued by Income Tax Department for calculating Long Term Capital Gains on sale of such property. There are other provisions too in case you have spent something on renovation work, etc. The Long Term Capital Gain would be taxed at 20% flat rate according to current Capital Gains Tax Law in India.


Question: He has no PAN card. Will he have to file his gains next year?

Answer: Regarding this question, if he has no PAN card, then he has to apply for PAN (Permanent Account Number) first, and then he can file the return once he gets his PAN card. Nowadays, PAN is received in 8 to 10 days itself, so it is not a big issue.

Question: Also when I read your question you have not disclosed the gain amount, whether it is over the threshold limit of 1 lakhs or not?

Answer: If the total income including the gains is under 1 lakhs, then you have to do nothing. If it is over one lacs, then you have to file return showing the capital gain, i.e., sale proceeds less expenses less cost of aquisition and file the return after capital gains tax taking in computation the index value of property.

If the entire proceeds is invested to buy new house, then he does not have to pay taxes on capital gains, but filing of returns cannot be avoided.

I hope the above answers solve your questions. If you need further assistance, contact your chartered accountant and he will be better able to solve your capital gains tax on sale of property and real estate quiestions.


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