How to calculate capital gains liability on selling different floors of an inherited house

I’m 62 years old and retired from a bank manager post in August 2023. Here’s my situation: my parents purchased a residential built-up property of 149.10 sq. meters in East Delhi in July 1996 for ₹4.96 lakh. After their passing, I inherited it through registration deed, will, and mutation in February 2020. The 2001 valuation is ₹38.45 lakh.

Under a builder contract, four floors were constructed between July 2019 and July 2021. The second floor was sold to the builder in July 2021 for ₹56 lakh, while I did not invest anything in constructing the floors.

The upper, first, and ground floors remain with me, while I sold the top floor in July 2024 for ₹65.65 lakh. Could you please advise on my capital gains tax liability and ITR reporting obligations?

From the facts you’ve provided, in 2019 you entered into a development agreement where the builder constructed four floors on your land. In return, the builder retained one floor and paid you ₹56 lakh for that floor, while you received three constructed floors without making any payment.

In this case, two transfers have occurred:

• floor transferred under the development agreement.
• The sale of the top floor in July 2024.

For the first transfer, the amount received plus the cost of construction of the three retained floors, reduced by your cost of acquisition, would have been subject to capital gains tax. You may have claimed an exemption under Section 54 for reinvestment in constructing the retained floors.

Regarding the sale of the top floor in July 2024, the gains would be long-term capital gains (LTCG). The cost of acquisition consists of:

The tax rate depends on the sale date:

• On or before 22 July 2024: Gains, after considering the indexed cost of acquisition, are taxable at 20% plus applicable surcharge and education cess.
• On or after 23 July 2024: Assuming you are a resident, you can choose to:

Pay 12.5% plus applicable surcharge and cess without indexation, or

Pay 20% plus applicable surcharge and cess with indexation.

You must disclose the gains in your Income Tax Return (ITR) under Schedule CG.

Additionally, the two floors retained by you must be disclosed as self-occupied house property (or rented, if applicable) under the head “Income from House Property” and in Schedule AL (Assets and Liabilities) if your income exceeds ₹50 lakh.

Mahesh Nayak, chartered accountant, CNK & Associates.

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