LTCG deduction available if the gains are used to buy properties
The markets are at all-time highs, and the SME (small and medium enterprises) space is also booming. Many are taking advice from the internet. Any advice for them?
Don’t take history lessons from a geography teacher. If you want to follow someone, then follow one who has been in the markets for over 20 to 30 years. If you make a newcomer your guru, then you’ve lost the game from the start. They are themselves newcomers in the market and earning money teaching others, so beware of them. Secondly, think of the stock market as a business. Market rewards you as per your perception, if you treat it as gambling, then it will prove a gamble for you. You cannot become a crorepati overnight. It’s a long-term game.
Sebi indicated there’s froth in the small and mid-cap space. What’s your take on this?
Firstly, it’s not true that there’s froth in all small- and mid-cap stocks. There must be about 5,000 mid and small-cap stocks. But I agree that there’s a froth in most pockets. When the market took a big hit last month, many mid-cap and small-cap companies fell much more. Personally, many of my portfolio stocks have seen more drawdowns, even 30%. We will see more such speed bumps going forward. New entrants in the markets are creating such movements and there’s no reason to be scared of it. It’s just that you need to pick the right
Sebi is stress-testing small and midcap funds. How liquid is your portfolio since you mostly have small and mid-cap stocks?
I don’t want to take any stress by doing a stress test. I am like Abhimanyu from Mahabharat. He only knows how to enter (the chakravyuh) but doesn’t know how to exit it. My exit depends on the company and the market situation and not me. In fact, not having liquidity has worked in my favor. I cannot stay invested for long in large caps since those are very liquid in nature. Three months back, I thought the markets were about to fall and I would have sold if I had liquid large-cap stocks. To protect my portfolio from myself, I’m more comfortable staying invested in less liquid midand small-caps.
Any tips for new entrants in the market?
I would recommend them to start with mutual funds. Stock picking is not a game that you can learn by looking at others.
Any advice for F&O (futures and options) traders?
I don’t have anything to say. Only time will tell. I must have written at least 10 songs warning investors to stay away from all these short-term things. Nobody listens...People who benefited from F&O are mostly brokers only. “If you are smoking you may die in 20-30 years, if you are doing F&O, you might die the next day. Remember that!” (For an extended version of this story, go to livemint.com)
My mother is selling her house. Meanwhile, I have booked an apartment due to be delivered by 2026 and have already paid 30% of the overall sale price. My mother has agreed to let me use the sale proceeds from the house she owns towards payment for my apartment. This apartment’s sale deed has my wife and I registered as buyers. Will it be possible to show this apartment purchase in my mother’s IT return against the capital gains from the house she owns? Are there any actions I need to take to ensure this happens?
Market rewards you as per your perception; if you treat it as gambling, then it will prove a gamble for you
—Name withheld on request
It is assumed that the house (“original property”) being sold off by your mother (being a sole owner) is a residential house and has been held by her for over 24 months (before the proposed sale date), thereby qualifying as a LongTerm Capital Asset. The gains from the sale of such property shall qualify as Long-Term Capital Gains (LTCG) and shall be chargeable to tax in your mother’s hands.
As per the provisions of Section 54 of the Income Tax Act 1961 (“the Act”), a deduction is available to the assessee in respect of LTCG from sale of residential house-property invested towards purchase of one residential house property (“new property”) in India (in specified cases investment in two properties is permitted), subject to fulfilment of specified timelines and conditions. The maximum deduction is restricted to the amount of LTCG earned from sale of original property.
To avail this deduction, the assessee is required to purchase or construct the new property. In case your mother is also an owner or co-owner of the new property, she should be eligible to claim deduction of the proportionate amount of LTCG reinvested in new property, subject to specified conditions being satisfied. Considering the conflicting judicial precedents, where the property is neither owned or co-owned by your mother, the deduction may be challenged.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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