Income tax Implication for ancestral property sale

POSTED BY Hema V ON February 25, 2013 10:13 pm COMMENTS (12)


Asking this for one of my friend. He has a hearing from income tax dept on non payment of tax for an amount of 20lakhs which was cash deposited on his bank  account in 2010. 

Amount was actually deposited after an ancestory property sale done by his father. He got12 lakhs as gift from father and remaining 8l amount he gave back to his mother. He was blissfully unaware of any tax implications for this. He used the 12 lakh for Prepayment of his existing home loan.

Now dept is asking for the proof regarding various transactions. There is a sale deed between his father and the buyer , but the amount is only 10lakhs mentioned in the papers. 



1. What is the tax that he would have to pay for this ? What is the tax rate ? I read somewhere that its either 10percent or 20 percent after indexation. now since this is ancestral property, how is this calculated? Who ultimately has to pay the tax – him or father or mother?

( father and mother are non working and dont file tax returns)


2. what is the penalty if any?

3. What other proofs will be required to present the case apart from sale deed? 


Please advice on the legal methods that can be adopted for this.







12 replies on this article “Income tax Implication for ancestral property sale”

  1. The issue has been beaten to death by all here, agreed. The real problem is not even about non-payment of taxes – worst case you pay a penalty and come out. This can be still be camflouged as ignorance.

    The real problem, as Ashal pointed out, is that the 20 lac property was registered for 10 lacs. I would not call that ignorance rather it is evasion – which is a worse problem to face between the two.

  2. Hema V says:

    You are right ashal. But if only more ppl are aware of how financial system works..most often in the case of salaried middle class ppl who pay the tax most diligently through tds, its the ignorance that causes this. Anyways its never an excuse as the system of karma catches up eventually, more than everbefore now empowered with IT 🙂

  3. Dear Hema, after the pain your friend is facing, now he & his other friends can not say that Income Tax people are not doing enough work to catch the Tax evaders. 😉

    From here onwards, I hope you & all of your friends ‘ll learn a lesson & ‘ll not indulge in any wrong doing either knowingly or unknowingly. System is now taking shape & IT people are now more equipped on DATA front to catch any wrong doing of ‘US’. Now is the time to be honest for all of us.



  4. Hema V says:

    Thanks both of you. Dear ashal, hes going to have to deal with it as there is no choice.

  5. Dear Hema & Dear Manish, both of you missed the point of involving black money transaction. The on paper value was quoted 10L Rs. during sell in 2010 where as actual received amount was 20L Rs. This is going to be main headache.

    Yes the LTCGs are to be taxed in the name of father.



  6. Hema here are my inputs !

    1. Your friend dont need to pay any tax on this amount of Rs 10 lacs, because it has been a gift from his father. There is no tax to be paid on the gift from certain relatives and father is one of them. All he needs to prove is that it was transferred by his father and as a gift . A small note from father on paper saying that it was a gift , will be enough for explaination.

    2. Now the problem is that his father will be on the radar for the tax department , the taxation issue is there, Father has to show that he has taken care of the taxation part, He has to pay the taxation as per the indexation rules. I can see above that you have understood the indexation rules and how to calculate the tax part, which is correct.


  7. Hema V says:

    So please confirm my undestanding.

    If property was of x value at index of 100, then its current value must be 7.11 times of that value. If the actual sale value is more than this, then the difference amount will be taxed at 20percentage of that. This tax should have been paid by his father ideally during that financial year?

    If he had gifted the money to someone also, still he should have paid tax for the gains he madE?

  8. Dear Hema, in that case, ask your friend to arrange the valuation of the property on 1st April 1981. It’s the start date of Cost Inflation index with base value of 100. For Property sell year i.e. 2010-2011, CII is 711. A govt approved valuer ‘ll provide the value of property in 1981.

    Please calculate the indexed LTCGs or LTCL as the case may be.



  9. Hema V says:

    Thanks ashal. It must have been in their family for atleast two generations. So you could safely take it before 70s. Do you want the exact year?

  10. Dear Hema, what was the purchase/construction date of this property in question? For indexation I require that.

    The 12L Rs. gifted to him by his father is not at all taxable.



  11. Hema V says:

    Thanks for the reply ashal. He is dealing this with tax professional only. But i thought this would be of additional help if any. Can you reply below queries alone as i had a feeling that they arent correct in this

    1. Can you let me know the correct tax rules for ancestral property sale? He mentioned flat 20percent, Wouldnt it be indexed? How is it indexed and calculated? In the forum, i could find the formula for a normal purchased sale and not for inherited ancestral property.

    2. Ifi father gifted 12lakhs and he used it for prepayment of home loan, will it be taxable for him at all?

  12. Dear Hema, please contact a local CA or Tax professional in your city or your friends’ city (if he is in another city). Too many complex issues are there & any plain wordly advice given in this case ‘ll not help you people as your friend is in serious trouble. Why I’m saying so. Your friend & his family members have done many mistakes.

    1. Sold the property @ 20L but on paper value is only 10L.
    2. Deposited all 20L Rs. in cash into bank account & that too not of seller (father).
    3. All these years, Father & mother have never filed ITR
    4. Gifted 8L Rs. to mother from the amount which does not belong to your friend at all

    My God, I’m unable to write down more. May God save your friend from more troubles.

    My best wishes are in advance with him.

    At the end, I w’d ask you once again to seriously discuss all the issue with a paid CA or Tax professional. Do not think that you can handle such things by asking queries in forums like this on behalf of your friend & then you can advise him on how to come out of the trouble unscratched..



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