Ancestral Land, a New Flat, and a TDS Mismatch
Mrs. Pratima Sahu, aged 58, sold a plot of ancestral land at Sundargarh on 20 December 2024 for ₹90,00,000 and paid brokerage of ₹90,000. Her father had purchased the plot in 1995 for ₹3,20,000 and died in 2010, after which she inherited it. The fair market value of the plot as on 1 April 2001 was ₹8,50,000. She used part of the proceeds to buy a residential flat at Bhubaneswar in February 2025 for ₹40,00,000, and she already owns one flat in Bhubaneswar in which she lives. Her other receipts for FY 2024-25 are fixed deposit interest of ₹1,80,000 from which the bank deducted ₹18,000 as tax, a cash gift of ₹1,00,000 from a friend on her birthday, and ₹2,00,000 received from her brother. The buyer deducted tax at 1% on the sale value, but her AIS shows only ₹60,000 of that deduction. She wants to know how the sale should be taxed and whether the flat purchase reduces her tax.
1. Compute the long-term capital gain on the land under both available methods and recommend one.
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Holding period: She held the land from 1995 through her father, since the period of the previous owner is counted for inherited property. It is a long-term asset (more than 24 months).
Cost: For an asset acquired before 1 April 2001, the assessee may substitute the fair market value as on 1 April 2001 where that is higher than actual cost. Her father's cost of ₹3,20,000 is replaced by ₹8,50,000.
Net consideration: ₹90,00,000 − ₹90,000 brokerage = ₹89,10,000.
Option 1 – 12.5% without indexation (available for land or building acquired before 23 July 2024, with the choice being given to a resident individual): ₹89,10,000 − ₹8,50,000 = ₹80,60,000; tax at 12.5% = ₹10,07,500.
Option 2 – 20% with indexation: Indexed cost = ₹8,50,000 × 363/100 = ₹30,85,500, using the cost inflation index of 100 for FY 2001-02 and 363 for FY 2024-25. Gain = ₹89,10,000 − ₹30,85,500 = ₹58,24,500; tax at 20% = ₹11,64,900.
Recommendation: Option 1, which saves ₹1,57,400 before surcharge and cess. The choice is made in the return and should be documented. The brokerage is deductible as a transfer expense under both options.
2. Quantify the section 54F exemption and state the conditions she must keep satisfying.
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Exemption: She invests ₹40,00,000 out of net consideration of ₹89,10,000, so the exemption is proportionate: ₹80,60,000 × ₹40,00,000 ÷ ₹89,10,000 = about ₹36,18,400. Taxable gain = ₹80,60,000 − ₹36,18,400 = about ₹44,41,600; tax at 12.5% = about ₹5,55,200 before surcharge and cess.
Conditions to monitor
- On the date of transfer she must not own more than one residential house other than the new one. She owns one flat, so she qualifies; a second existing flat would have destroyed the claim entirely.
- The new flat must be purchased within one year before or two years after the transfer, or constructed within three years. February 2025 is within the two-year window.
- She must not purchase another residential house within two years, or construct one within three years, of the transfer.
- The new flat must be in India, and the investment counted is capped at ₹10 crore.
- If she sells the new flat within three years, the exemption is withdrawn and taxed in the year of sale.
- She should retain the registered sale deed, payment trail and possession documents, because the exemption is verified against these.
3. How should the gifts, the interest, and the tax deducted at source mismatch be handled?
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Gifts
- ₹2,00,000 from her brother: a brother is a relative for section 56(2)(x), so the amount is wholly exempt, irrespective of the amount.
- ₹1,00,000 from a friend: a friend is not a relative, and the amount exceeds ₹50,000, so the whole ₹1,00,000 is taxable as income from other sources. The ₹50,000 threshold is not a deduction.
Interest: ₹1,80,000 fixed deposit interest is taxable under income from other sources; the ₹18,000 TDS is a credit against her tax, not an exemption.
TDS mismatch on the land sale: Section 194IA required the buyer to deduct 1%, i.e., ₹90,000, on ₹90,00,000. She can claim only what actually appears in Form 26AS, even if the buyer deducted more. Practical steps:
- Ask the buyer for the challan and the Form 26QB acknowledgement.
- If the buyer deducted but did not deposit, the credit will not appear; the buyer is liable, and she should raise a grievance on the reporting portal.
- If a wrong PAN was quoted, the buyer faces a higher deduction under section 206AA and she may need a correction. Claiming ₹90,000 when only ₹60,000 is visible will produce a short-payment demand with interest under section 234B.