Can I share capital gains tax with my siblings after selling an inherited house for ₹1.4 crore?

The liability of paying tax on capital gains from selling an inherited property is on the legal owner, or the person in whose name it is registered. The liability can't be shared with siblings, even if one shares the gains with them. However, one can convince the siblings to share the tax burden. Today's Q&A answers a query on this issue shared by a reader:

Answer: A Hindu can execute a Will to bequeath all his assets to take effect after his death and his assets shall be distributed accordingly by the executors of his Will. In case a person dies without making a valid Will, all his assets are inherited by his legal heirs as per the provisions of Hindu Succession Act, 1956 immediately on his death. I have presumed that your father was a Hindu and therefore the provisions of Hindu Succession Act, 1956 would apply as regards the succession of all of his assets.

In case a male Hindu dies intestate i. e. without leaving a valid Will, all his assets are inherited by his legal heirs as per the schedule to the Hindu Succession Act, 1956, and accordingly your all five siblings inherited the house in equal parts. Since you have already bought the share of your brother and have got the property registered in your name with the consent of your sisters, you have become the full legal owner of the property on you paying for your brother’s share and your sisters renouncing their share in your favour.

As the property was constructed prior to April 1, 2001, the fair market value of the house on that date shall be taken as the cost of the full house for which you will have to obtain a valuation certificate from a registered valuer. Please note that the valuation as per the valuer’s certificate cannot be higher than the stamp duty valuation on that date. So you can straight away adopt the stamp duty valuation for April 1, 2001 if the same is readily available.

You have got 4/5 of the house either by way of inheritance or as gift so you will have to take 4/5 of the fair market value on April 1, 2001 as your cost. You have to add ₹12 lakh for the 1/5 share of your brother purchased by you in 2017 to your cost.

As far as the question of taking ₹8 lakh spent on repair into account for capital gains purposes is concerned, it will depend on whether the same was spent for improvement of the house or for general repairs. If it was for general repairs, the same cannot be treated as part of the cost. Since the amount spent is substantial, in my opinion, it can be treated as part of the cost.

As you are the legal owner of the house, it is your liability to pay capital gains tax. As you are giving a share in the proceeds to your three sisters, you need to explain to them the full tax implications of the transaction and convince them to agree to bear the proportionate capital gains tax liability discharged by you.

You being a resident individual have the option to pay lower of flat rate of 12.50% on plain long-term capital gains or 20% on the indexed long term capital gains.

In my opinion you will be entitled to avail the indexation benefits since April 1, 2001 in respect of 4/5 of the fair market value of the house, and for the 1/5 part on ₹12 lakh from the date of agreement to buy out your brother’s share in the house. In case the expenditure of ₹8 lakh can be considered as the cost of improvement of the house, you can avail indexation for that too.