For Calculating Capital Gains, Sale Will Be Considered When Sale Deed Is Executed

I have sold a plot of land for which I received two cheques in March 2023. I received two additional cheques in April 2023 at the time of registration. For the purpose of calculating capital gain when will the sale be considered as having taken place?

Answer: Receipt of payment and completion of a sale transaction are two different things.

So for determining the date of sale, neither the date on which you received the money is relevant nor is the date on which the agreement was registered.

The relevant date for ascertaining the date of sale is the date of execution of the sale deed.

So, if the sale deed was executed in April 2023, the sale will be considered in 2023-2024 for calculating capital gain. However, if the sale deed was executed in March 2023 and registered in April 2023, the capital gains will be taxable in the year 2022-2023, and not 2023-2024.

It may also happen that you may have to pay tax on capital gains in case (as per the terms of the sale) the payment has been deferred, and even though you have not received a single penny towards sale consideration during the year.

Are wedding gifts received considered taxable even where no single gift exceeds Rs. 5,000 in value?

Answer: Under Section 56(2) (x) of the Income-tax Act, 1961, gifts are not to be treated as income in the hands of the recipient if the aggregate value of such gifts received from all sources does not exceed Rs. 50,000 during a year.

Beyond this threshold of Rs. 50,000, the aggregate value of gifts will become taxable in the hands of the recipient without any basic exemption.

However, there are certain exemptions to this rule of taxability in case of gifts aggregating over Rs. 50,000.

One of the exception is in respect of all gifts received at the occasion of wedding. However, this exception of gifts received at the wedding is applicable to the bride and groom only and does not extend to gifts received by other relatives at the occasion. The exception rule of not treating the wedding gifts as income extends to all the gifts irrespective of their individual value.

What are the tax implications if I gift my house bought 10 years back to my brother who will sell it immediately and utilise the money to start a business? Alternatively, I can sell the house myself and gift the money to him. Which strategy is more advisable?

Answer: Gifts received, whether in cash or kind from siblings are not treated as income under provisions of Section 56(2) (x) of the Income-tax Act, 1961. So, the transaction of gift between you and your brother, whether in cash or of the house, is tax free in your brother’s hand.

In case you gift the house to your brother, you will have to pay stamp duty and registration charges on market value of the property at the prevailing rate in your state.

Since the house has been held by you for more than two years, the profits would be treated as long-term capital gains (LTCG). The transaction of sale of the house will attract capital gains tax liability under both the situations. The tax implications for sale of the house under both the strategy would be the same because for assets acquired through gift, the cost and holding period would be the same, whether you sell the house or your brother sells it.

It may be noted that there is no clarity about the date from which the benefit of indexation is available to the person who acquired the property by way of gift. Though various tribunals have held that the indexation benefits should also be available from the date on which the previous owner had acquired it for consideration, but the matter may get into litigation.

Looking at the stamp duty and registration costs and ambiguity about indexation benefit, it is advisable that you sell the house and gift the money to your brother, after paying applicable LTCG tax.

Balwant Jain is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)