Tax Column

I have sold a residential house and made long-term capital gain of ₹8 crore in the financial year 2023-24. The entire capital gain was reinvested in a new residential house and accordingly deduction under Section 54 of the IT Act was claimed. Now I have sold the new house for a consideration of ₹10 crore within three years from the date of its purchase but after two years. What is the income Tax implication? [EasyDNNnews:PaidContentStart]

You have sold your residential house and made long-term capital gain of ₹8 crore. You have reinvested the entire capital gain in new house and accordingly exemption under Section 54 of the IT Act is allowable to you. There is no issue for the assesSMEnt year 2024-25. However, there are certain conditions for exemption under Section 54 for its retention. The new house must be held for a minimum of three years from the date of purchase. If it is sold before three years, exemption claimed earlier is withdrawn and becomes taxable as capital gain in the previous year in which the new house was sold. Since you sold the new house within three years, exemption of ₹8 crore claimed earlier will be withdrawn and the same is taxable in the current financial year. Since you held the new house for more than two years, it becomes a long-term capital asset and accordingly the entire exemption will be taxed as long-term capital gain. 

To my understanding, based on the Union Budget 2026, buyback proceeds are to be taxed as capital gains (STCG/LTCG) in the hands of investors from April 1, 2026 (FY 2026-27). May I kindly request clarification on whether, in the case of shares held prior to January 31, 2018 and tendered and accepted in a buyback offer during FY 2026 27 (i.e., after April 1, 2026), the benefit of grandfathering (as available under Section 112A) would remain applicable for the purpose of LTCG calculation. This is an important factor in deciding whether to tender shares in a buyback offer or to sell them in the open market (possibly at a lower price, but with the benefit of grandfathering on the acquisition cost). 

Under Section 69 of the IT Act 2025 (earlier relevant Section 46A of the IT Act 1961), if a company purchases its own shares from its shareholders, then the difference between the cost of acquisition and the value of consideration received from the company would be deemed to be the capital gain and will be taxed accordingly under the provisions of Section 72 read with Section 90(7) of the IT Act 2025. Under Section 72 of the IT Act 2025, capital gain would be computed by reducing the cost of acquisition from the sale consideration received. 

Section 90(7) of the Income-tax Act 2025 defines cost of acquisition in the case of a listed company’s shares acquired before February 1, 2018. The fair market value of such shares as on January 31, 2018 would be considered as cost of acquisition. In view of the clear provisions in the Finance Act 2025, you will be entitled to grandfathering in respect of listed company’s shares acquired by you prior to February 1, 2018. 

I own land which I acquired prior to April 1, 2001. Subsequently, I have constructed a building thereon which was completed on May 30, 2025. Now I have decided to sell the land along with the building in July 2026. I am going to make substantial gain. Kindly let me know whether the gain would be short term capital gain or long-term capital gain? 

The surplus from your proposed sale involves two distinct capital assets; one is the land and another is the building. As you acquired both these assets at different times, the entire capital gain must be split and calculated separately based on their holding periods. You acquired the land prior to April 1, 2001, hence the holding period is more than two years. Therefore, the surplus would be taxed as long-term capital gain, which is subject to tax at 12.5 per cent plus applicable surcharge of 15 per cent. The building was completed in May 2025. Therefore, on the date of sale, the holding period will be less than 24 months. Therefore, the capital gain pertaining to the building would be taxed as short-term capital gain and will be taxed at slab rate. You need to apportion the total sale consideration between the land and the building. For this purpose, you may obtain a valuation report from a registered valuer who will split the sale value. In today’s time, the value of land is much higher than the cost of the building. Therefore, your substantial gain could be on account of sale of land, which will be in the nature of long-term capital gain. 

My son is at present a minor and therefore his interest income was always taxed in my hands. Now he is going to be a major on January 1, 2027. Therefore, on April 1, 2027, i.e., the next tax year, he will be a major. Whether his entire income of financial year 2026-27 (tax year 2026-27) would be taxed in my hands or would be taxed proportionately? 

In the financial year 2026-27 (tax year 2026-27), your son is attaining major status on January 1, 2027. His income for the year will be split into two distinct periods. The status of a son as major on April 1, 2027 does not retrospectively apply to the entire financial year. You have to split your son’s income for the financial year 2026-27 into two periods, between April 1, 2026 till December 2026 and another period from January 1, 2027 till March 31, 2027. Income earned by your son for the period April 1, 2026 till December 31, 2026 would be taxed in your hands as your son was a minor during this period. Income of your son for the period from January 1, 2027 till March 31, 2027 will be taxed in his hands since he is going to be a major. Your son has to file a separate tax return in his individual capacity for income earned from January 1, 2027 till March 31, 2027. Kindly ensure your son’s PAN card is updated from minor to major status.

We would be happy to address your tax-related queries. Kindly share them with us at editorial@dsij.in
 

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