Tax Queries: LTCG tax on property sale if held for more than 2 years
Queries from our readers on income tax and other levies answered by a chartered accountant.
What are the tax implications on the company as well as on an investor when the company redeems preference shares at a premium? –Rimjim Mishra
In absence of the information regarding the terms of issue “preference shares” the correct legal position in the hands of the company and shareholder cannot be ascertained. However, it is possible to take a view that the event of redemption of preference shares by an unlisted company will be covered by the provision of Section 115QA of the Income Tax Act, 1961. If the provisions of Section 115QA are applicable, it will tantamount to buyback of shares by the company. The company will be liable to pay tax under Section 115QA on the difference between the redemption value paid to the preference shareholder and the original amount received at the time of allotment of preference shares. In such event, there will be no tax liability in the hands of the Shareholder under Section 10(34A) of the Act. The recent amendments proposed in The Finance (No. 2) Bill, 2019 also will cover the buyback of shares by the listed company also.
I hold three residential properties jointly with my wife. We plan to sell two of them and reinvest the amount in a bigger residential property. How do we avoid long-term capital gains tax? –Sharat
It is assumed that you and your wife are the co-owners of all the three properties and both of you have undivided rights in the said properties and both of you have contributed funds for acquisition of the said properties. You and your wife will be liable to pay long-term capital gains tax on transfer of your rights in respect of two of the properties under Section 45 of the Income Tax Act, 1961, if the said properties are held by you for a period of two years or more before the date of the sale. The liability for payment of long-term capital gains tax will depend upon the ratio of holding in both the properties and each one will have to compute individually the liability for payment of longterm capital gains tax. Both of you can avail the deduction under Section 54 if each one of you will reinvest the capital gains amount accruing to on sale of both the properties, in purchase of a new residential property complying with the conditions stipulated under Section 54.