Clubbing rules apply for in- laws

QMy father is 79 years old. He wishes to sell his site and invest the sale proceeds in my wife’s name by buying an agricultural land so that I can take up farming. She is from an agricultural family and I quit job in May 2017. Is my father’s selling of land taxable? Which is the best option to minimise income- tax liability? M. R. RAVISH KUMAR Mysuru

A) As per Section 64( 1)( vi), where an asset is transferred, directly or indirectly, by an individual to his or her son’s wife without adequate consideration, the income from such asset is to be included in the total income of the transferor. Though agriculture income is not taxable, the same is included for rate purpose and after providing rebate, the balance will still be taxable.

As your query does not provide the financial details of sale of land, it is difficult to state whether the land sold is taxable or not. However, assuming that the land proposed to be sold by your father is held for more than two years, it will be treated as the sale of long- term capital asset, thereby claiming the benefits of cost inflation index from the date of purchase of the asset by your father. The tax on sale of long term capital asset is taxed at a rate of 20 per cent on the difference between the sale consideration received and indexed cost of acquisition. The long- term capital gains ( LTCG) can be saved by investing in capital gain bonds within six months from the date of sale of the property to the extent of ` 50 lakh. The LTCG tax liability can also be avoided if the sale proceeds from the sale of land is invested in one residential house, which is again subject to fulfillment of various conditions laid down in Section 54F of the Income Tax Act.

As per Section 54B, for claiming exemption from capital gains tax, the capital gains arising on transfer of any urban agriculture land by an individual or HUF will be exempted provided the land proposed to be sold has been used for agriculture purposes in the 2 immediately preceding years. Further, the investment in agriculture land ( urban or rural) has to be completed within two years from the date of transfer. The other conditions laid down under Section 54B also needs to be complied.

IF AN ASSET IS TRANSFERRED BY AN INDIVIDUAL TO HIS OR HER SON’S WIFE WITHOUT CONSIDERATION, IT WILL BE TAXED UNDER THE HANDS OF TRANSFEROR

QI quit my job in 2017 and the accumulated superannuation fund was used for five- year pension. I didn’t opt for one- third commutation, which is tax- free and used the amount for five years. Since I haven’t availed the commutation amount, can I claim a one- third tax- free deduction? Should I show the pension in my tax calculation? SHYAM PRASAD Via e- mail

A) The exemption available under Section 10 ( 10A) of the IT Act for commutation of pension is specific. Since you had not opted for commutation immediately, you cannot claim exemption.

( The writer is a chartered accountant. You can your send queries to info@rathiandmalani.com)