FAQ: What will be the capital gains tax implication on smaller plots? – Property Hotline

Expert: Suresh Surana, Founder of RSM Astute Consulting.

Question: Srinivasan’s mother-in-law owns a plot of land in Lucknow which she occupies. He wants to know if they split it up and break it into smaller plots and sell it, what will be the capital gains tax implication? The plot of land was purchased in 1967. It is in a society but is a freehold plot.

Answer: If the land is not an agricultural land situated in a rural area, the sale of which is exempt from tax. In that case, your mother-in-law shall be subject to capital gains tax on the income from transfer of such plots.

As the plot of land has been held by your mother in law for more than 36 months, it is a long term capital asset eligible for indexation benefit. She will be entitled to substitute the value of the property as on 1st April 1981 as the cost even though the actual cost in 1967 when it was purchased may be lower. The gain arising on transfer of a long term capital asset is termed as long term capital gain which is liable to tax at the rate of 20% (plus surcharge and cess).