Interest on tax-saving bonds taxable

SC Vasudeva

Q.   This is with reference to indexed cost query of residential house/plot published in these columns on 10/9/18. Kindly inform me on following points for my residential flat from urban housing agency:

1. Formula to calculate indexed cost for payment made, say during FY 2008-09 (Rs 15 lakh) and in FY 2010-11 (Rs 5 lakh) against its sale in 2018-19 say (Rs 35 lakh).

2. Salient features of LTCG bonds up to their maturity.

3. Whether amount of indexed amount received can be invested in commercial property without tax liability?

4. If amount of payment made (Rs 30 lakh) is more than registered deed in FY 2011-12 (Rs 25 lakh), then its relation with the indexed cost. - SS Bedi

A. a)   The method of applying cost index has been changed by notification dated 5th June 2017 and the Government of India had published a new index taking financial year 2001-02 as the base year. On the basis of the index so notified, the cost inflation index applicable for financial year 2008-09 is 137, for 2010-11, it is 167 and for financial year 2018-19, it is 280. The amount of indexed cost is computed by dividing the actual cost by index applicable for the year in which cost was incurred and indexed as per the above index and multiplying the resultant figure with the index applicable for the year of sale. The indexed cost for the amount of Rs 15 lakh incurred in financial year 2008-09 would work out at Rs 30,65,693 and for the amount incurred in financial year 2010-11, it would work out at Rs 8,38,323. These computations of indexed cost are based on index notified for financial year 2018-19. On the said basis, there will be a long- term capital loss of Rs 4,04,016 which can be carried forward for adjustment against long-term capital gain in the next succeeding eight financial years. The computations would change in case the index for 2019-20 is notified.

b)   The tax-saving bonds can be purchased for maximum amount of Rs 50 lakh within six months from the date of sale of residential house. These bonds have a lock-in period of five years and carry interest of 6%. The interest so received is taxable.

c)   The amount of indexed cost realised on the sale of residential house can be utilised for purchase of a commercial property. Such indexed cost would be deductible from the sale consideration for computing the amount of capital gain which would be chargeable to tax in case capital gain arising on the sale of residential house is not utilised within the specified period for the purchase or construction of a residential house. 

d)   The amount of indexed cost would be computed on the basis of the figure mentioned in the conveyance deed.

Q.   I purchased a residential plot for Rs 11,72,220 (total cost including stamp duty etc.) in June 2005 and sold it for Rs 1.80 crore in October 2018. I purchased a residential plot for Rs 2.16 crore plus expenses (total cost Rs 2.30 crore) in December 2018. Construction started in February/March 2019 after raising a home loan and it will take almost a year to complete the construction. 

My queries are regarding applicability of capital gains tax.

1. Will I have to pay capital gains tax?

2. Will I have to open a capital gains account under capital gains scheme. If yes, for how much amount considering I have already invested more than the total amount received and I do not have any surplus funds with me at present. - NC Bansal

A. a)   You will not have to pay any amount of tax on long-term capital gain in case the amount of Rs 1.8 crore realised from the sale of the plot is utilised for the purchase of another residential plot and the construction is started in February/March 2019 and completed within three years after the date of sale.

b) here would be no necessity to open an account under capital gain scheme as you have utilised the entire amount of consideration for the acquisition of plot and you are likely to spend more than the amount realised from the sale of the plot.

Q.   If my daughter gets alimony, can she give some amount out of that as a gift to me and how much?

My further query is can I use that amount for any business. Whether the amount so received by me as a gift has to be returned by me to my daughter? Please advise. - Mohinder Sharma

A. a) The amount received by your daughter as alimony would be in lieu of maintenance for herself and her children by virtue of a divorce.  The amount can be utilised by her for the purpose for which the amount has been agreed to be paid by her ex-husband. The utilisation of such amount towards a gift to father may lead to legal complications. It would, therefore, be advisable to consult a lawyer who had represented her in the court for the divorce proceedings before any amount out of alimony is utilised for the purpose other than that specified in the court order.

b)   The amount received as gift can be utilised by the donee in any manner he desires. This reply is subject to whatever is stated in (a) above in respect of use of amount received as alimony.

c) In case the amount is received as gift, it would be irrevocable and therefore need not be returned to the donor. This reply is subject to whatever is stated in (a) above in respect of use of amount received as alimony.