Tax on inherited property

TAX QUERIES

I inherited a house from my father in 1979. It is located in Pune, Maharashtra. This house was bought in 1972, but I am not aware at what price it was purchased. The current market value of the house is around Rs 5 crore. I wish to sell it. Please tell me the tax incidence.

-Anuj Surve, Dombivali

The cost of a capital asset acquired (including inherited) prior to April 1, 1981 is considered by taking the fair market value as on April 1, 1981. Approved valuers can provide you with a certificate, authenticating the past market value. You can use this value for computing the cost of acquisition, though your father purchased it in 1972.

Such capital gain can be exempted by availing the benefit available under section 54 or section 54 EC, if the gains are invested within the stipulated time. Section 54 requires you to invest the gains in another residential house.

Similarly, section 54 EC imposes a limit of investment of Rs 50 lakh for each financial year. Thus, if your gains arise in December 2008, you may invest Rs 50 lakh before March 31, 2009 in tax saving bonds and another Rs 50 lakh next month (April), which will be accounted in the next financial year.

My uncle, now settled in Dehradun, owns a house in Mumbai. He wants to gift this property to me. The present market value of the house is around Rs 90 lakh. He, however, does not wish to be saddled with any income tax liability. Please suggest a way out.

-Neha Tuteja-Rohtak

At the outset, gift of an asset other than 'sum of money' does not attract any income tax liability in the hands of the recipient or donor. But one needs to pay the stamp duty, registration and society charges. There will be no incidence of income tax on you or the uncle.

I am a marketing executive with a multinational firm. Along with my job, I am permitted to offer consultancy to my corporate clients. I have a small office set up at my residence. Due to this consultancy business, I incur incidental expenses like telephone, stationery, electricity and others. There is also substantial entertainment expenditure. However, I fear that for the current accounting year, ending March 31, 2009. I may have losses in the consulting business. Can I deduct these business loss against my salary.

-Simaran Khanna, Delhi

This is not permitted under income tax laws. Due to a recent amendment in the Income Tax Act, loss under the head 'Business' or 'Profession' is not permitted to be set off against the salary. Therefore, you may need to tone down your lavish entertainment expenditure on business development until you generate a positive income.

I am a salaried person drawing an annual remuneration of around Rs 20 lakh. I also have an annual interest income of about Rs 1 lakh from fixed deposit with banks. I want to buy a car costing around Rs 15 lakh. I plan to take a loan of Rs 10 lakh from a bank for this purchase. Can I claim the deduction for interest on such a loan as well as depreciation on the car and set it off against the salary income?

-Suren Venktesh, Chembur

Provisions of income tax law dealing with salary income do not permit any deduction of this kind. You will not be eligible to claim the deduction of interest on the loan for the car nor any depreciation on such car against your salary income.

The writer is a chartered accountant