Capital Gain Tax Exemptions on Inheritance Property

Capital Gain Tax Exemptions on Inheritance Property

Capital gain is a term used to denote any profit or gain arising to an assessee from shift of ownership of a capital asset. This capital profit or gain is taxable under the income tax and needs to be cleared on such assessment year. The incidence of taxation takes place on the time on which the transfer deed was executed and hence becomes due from that very day. But this taxation policy is subject to certain exemptions and not all transfer events are taxable. These exemptions relate to exemptions on inheritance of inherited property.

Sec 54 provides for exemption of capital gains on transfer of residential house. The salient features for such transfer are:

Only individuals or a Hindu Undivided family can claim exemption under this section
The capital gain should result from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, the income from which is chargeable under the head ‘Income From House Property’
The property should be a residential house
The assessee must have within a period of one year before or two years after the date of transfer purchased a residential house (old or new) or within a period of three years after that date constructed a residential house property
The assessee must deposit the amount of capital gain in Capital Gains Account Scheme in the manner and according to the conditions laid down in SEC 54 (2).
Manner of Exemption- the exemption shall be least of the following:
Capital gain on transfer of residential house.
Cost of new house
Sec 54D (1) provides exemption on capital gain on compulsory acquisition of land and buildings. The exemption is given on the basis fulfillment of certain conditions:

The capital gain should arise from the way of compulsory acquisition under any law of a capital asset being land or building or any right in land or building forming a part of an industrial undertaking belonging to the assessee;
Such land and building or right must have been used by the assessee for the purpose of business of the said undertaking in two years immediately preceding the date of transfer;
The assessee must have, within a period of 3 years after the date of transfer, purchase any other land or building or any right in any other land or building for the purpose of shifting or re-establishment of the said undertaking or setting up another industrial undertaking;
The assessee should deposit the amount of capital gain in Capital Gain Accounts Scheme to the extent and in the manner as prescribed in section 54D (2).
Manner of exemption- The exemption will be least of the following:
Capital gains generated on transfer of land or building by way of compulsory acquisition.
Amount invested in new land or building
Thus, we find that though there are exemptions available in capital gain but these are not absolute in nature but are restrictive, i.e. only a part is exempted. Still one can say that keeping all the documents in a safe place is very important as these documents acts as a base on which these exemptions are provided to an assessee and even though if there is no exemption available, still the importance of these documents cannot be ignored as the tax is levied on the amount of capital gain are computed from these value. Therefore, it is vital for every assessee who is liable to pay tax, to keep proper documents of inherited property.