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Capital Gains Tax Valuation (Immovable Property)

 
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amibrahim



Joined: 03 Sep 2008
Posts: 376

PostPosted: Wed Apr 11, 2012 6:49 pm    Post subject: Capital Gains Tax Valuation (Immovable Property) Reply with quote

Capital Gains Tax Valuation. (Immovable Property)

(Keywords: Under Income-tax Act 1961 as amended from time to time, classification of Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG), Cost Inflation Index (CII), computation of LTCG, with illustrative examples are discussed)

Profits or gains arising from the transfer of a capital asset made in a previous year are taxable as Capital Gains under the head “Capital Gains”. Important ingredients of Capital Gains are existence of a capital asset, transfer of such asset and profits or gains that arise from such transfer, 

Source: ^ http://www.incometaxindia.gov.in/publications/4_compute_your_capital_gains/chapter2.asp#Inflation  

Short Term Capital Gains (STCG)

Long Term Capital Gains (LTCG)

Ordinarily transferring a capita asset held for 36 months or less gives rise for STCG.

Transferring a capital asset held for more than 36 months gives rise to LTCG.

Computation of Capital Gains STCG:

Full value of consideration – (Cost of acquisition + Cost of improvement + cost of transfer).

Computation of Capital Gains LTCG:

Full value of consideration received or accruing – (Indexed Cost of acquisition + Indexed Cost of improvement + cost of transfer).

 

Note: LTCG

 

Seller has to pay the STCG and LTCG.

Selling cost or cost of transfer to include brokerage paid, etc. Current LTCG tax for an individual or Hindu Undivided Family (HUF): 20 percent of capital gains.

Where indexed Cost of acquisition:

Cost of acquisition x

CII (Cost Inflation Index) of the year of transfer / CII of year of acquisition.

Indexed Cost of improvement:

Cost of improvement x

CII of the year of transfer / CII of year of improvement.

 Where the capital asset is transferred is land or building or both, if the full value of consideration received or accruing is less than the value adopted or assessed by stamp valuation Authority, the value adopted by such Authority would be taken as the full value of consideration.  The reasonable sale consideration or Stamp Authority valuation whichever is higher may be taken by the Stamp Authority.  

Capital gains tax valuation specified date is currently 1-04-1981. Any property acquired prior to the specified date, land value as on 1-4-1981 plus DRC (Depreciated Replacement Cost) of building, if any, as on the specified date would be the cost of acquisition. The cost of acquisition would be either cost or fair market value. The cost of acquisition needs to be appropriately indexed based on the prescribed CII for the Financial Year of purchase and sale, respectively as on 1-4-1981 or on the date of acquisition and improvement after 1-4-1981. Indexed Cost of acquisition means an amount which bears to the cost of acquisition the same proportion  as the Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee  or for the beginning on the 1st Day of April 1981, whichever is later.

Under Section 50D, where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or can not be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received as a result of transfer.

The assessee can opt for cost of acquisition or fair market value as on 1 – 04 -1981, where the capital asset became the property of the assesse before 1st April 1981 and ……… where the capital asset became the property of the previous owner before the 1st April, 1981 means the cost of the capital to the previous owner or the market value of the asset on the 1st day of April, 1981 at the option of the assessee. S. 55 (2) (b) (i) (ii) & (iii Liquidation).  

Property acquire after 1st April, 1981, only cost of acquisition should be taken. The cost of acquisition needs to be appropriately indexed based on the prescribed CII for the Financial Year of purchase and sale, respectively on the date of acquisition and improvement after 1-4-1981. 

 

“A Registered valuer is supposed to know as to which method or mode should be adopted for the purpose of valuing a particular land or a building having regard to a large number of factors involved therein.  The tax on capital gains does not  envisage that the valuation given must be true and exact market value………. We have earlier noticed that  one of the modes of computating the market value may be based on a judgment or award in respect of acquisition of similar land, subject of course to such increase or decrease thereupon as may be applicable having regard to the accepted principles laid down therefor and may be found applicable”. (Judgment of Hon’ble Supreme Court of India in Dilip N. Shroff v Joint Commissioner of Income tax and others, October, 2007, as reported in Indian Valuer Journal, October, 2007 PP 1214).

Full Value of consideration: This is the amount for which a capital asset is transferred. It may be in money or money's worth or a combination of both.

Where the transfer is by way of exchange of one asset for another, fair market value of the asset received is the full value of consideration. Where the consideration for the transfer is partly in cash and partly in kind, fair market value of the kind portion and cash consideration together constitute full value of consideration.

Cost of Acquisition: Cost of acquisition of an asset is the sum total of amount spent for acquiring the asset.

Where the asset was purchased, the cost of acquisition is the price paid. Where the asset was acquired by way of exchange for another asset, the cost of .acquisition is the fair market value of that other asset as on the date of exchange.

Any expenditure incurred in connection with such; purchase, exchange or other transaction e.g. brokerage paid, registration charges and legal expenses also forms part of cost of acquisition.

Sometimes advance is received against agreement to transfer a particular asset. Later on, if the advance is retained by the tax payer or forfeited for other party's failure to complete the transaction, such advance is to be deducted from the cost of acquisition.

WAIVER: The exemption of capital gains can be claimed by investing in full (One year before sale or within two years after sale or under construction house within three years after the date of sale) or partly by investing in the house and / or bonds and partly paying the proportionate income tax to the extent of capital gains, which have not been invested as above. The assessee should not own more than one house (Other than the new house) on the date of sale; or purchase or construction of the residential house. (Section 54F). 



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amibrahim



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PostPosted: Wed Apr 11, 2012 7:21 pm    Post subject: Computation of Capital Gains Reply with quote

Example I: (Specified Date 1 – 04 – 1981)

Land extent: 1,200 sqft

Residential Building BUA: 1,200 sqft

Improvement: addition + refurbishment

Year sold

Year bought: 1975 in Chennai, Mylapore

Year constructed: 1975, BUA: 1,200 sqft

Year: 1990 - 91

2006 - 07

Land Value: Rs. 72,000/= (say “A”)

DRC: Rs. 1,08,000

Say (“B”)

Rs. 1,20,000/=

(600 sqft added)

Rs. 1,00,00,000

Value on 1/4/1981

Value on 1/4/1981

A+B: Rs. 1,80,000/=

1990 - 91

2006 - 07

CII:      100   

100

182

519

 Computation of Capital gain:

 

Selling Price (Say “S”)

Indian Rupee

1,00,00,000

Selling expenses (Say “C”)

2,50,000

Indexed Acquisition Cost: 1,80,000 * 519/ 100 (Say “D”)

9,34,200

Indexed cost of improvement: 1,20,000 * 519/182 (say “E”) With Document Proof

3,42,198

Capital gains:  S – (C+D+E) Say “CG”

84,73,602

S. 54 F (Exemption) Re-investment towards new residential property one year prior to date of transfer. Say “RI”)

98,00,000

Capital gains

0

 
Example 2: (Specified Date 1 – 04 – 1981) 

An apartment building in Thiruvanmiyur, Chennai, 860 sqft BUA, UDS of Land: 516 sqft, cost of acquisition is Rs 17,00,000/= during 1989 -1990 (As per Deed of Apartment). During the same year, an amount of Rupee 2,50,000/= was spent towards interior decoration. The property was sold during FY 2009-10 for a consideration of Rupee 90,00,000/=. Cost of sale is Rupee 2,25,000/= CII during 1989-90: 172 and 2009-10 is: 632 

Computation of Capital gain:

 

Selling Price (Say “S”)

Indian Rupee

90,00,000

Selling expenses (Say “C”)

2,25,000

Indexed Acquisition Cost: 17,00,000 * 632/ 172 (Say “D”)

62,46,512

Indexed cost of improvement: 2,50,000 * 632/172 (say “E”) With Document Proof

9,18,605

Capital gains:  S – (C+D+E) Say “CG”

16,09883

S. 54 (EC) exemption Investment of capital gains in certain fund (Say “RF”)

50,00,000

Capital gains for an individual or a HUF (Formula for Deductible:

Amount Invested / Net Consideration * LTCG)

7,15,504

 

Example 3: (Specified Date: 1/4/1981)

An apartment building admeasuring 700 sqft was purchased in Chennai during 1970 at Rupee 30,000/=. During redevelopment process Builder offered 50% extra, which would make the new flat 1,050 sqft. Mr. “X” opted for 860 sqft and surrendered 190 sqft for a consideration of Rupee 13,30,000/=, which the builder has agreed to pay in six installments during the next three financial years from FY 2010-11 and Mr. “X” has handed over the initial residential flat to the builder. CII during 1981-82: 100 and 2010-11 is: 711. Mr “X’ can claim exemption if his flat is handed over within 3 year from 2010-11 and market value of flat is Rupee 65,00,000/= (Surrendered flat composite rate as on 2010-11) 

 

Sales consideration = Rs. 13,30,000 (Surrendered Value of 190 sqft)  + Cost of construction of Flat of 860 sqft. (Say “S”)

Indian Rupee

23,62,000

Selling expenses (Say “C”)

0

Indexed Acquisition Cost: 30000 * 711/ 100 (Say “D”)

2,13,300

Indexed cost of improvement: (say “E”)

0

Capital gains:  S – (C+D+E) Say “CG”

21,48,700

S. 54 F exemption Re-Investment towards new residential property within 2 years after the date of transfer or  within 3 years after the date of transfer in an  under construction  residential property (Say “RC”)

65,00,000

Capital gains (In the opinion of A. M. Ibrahim)

0

 

 



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amibrahim



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PostPosted: Thu Apr 12, 2012 1:04 pm    Post subject: Cost of Acquisition if acquired by Will, Gift, etc Reply with quote

Cost of Acquisition with reference to mode. § 49 (1) PREVIOUS OWNER}. 

Sl. No

Where the capital asset became the property of the assessee.

Cost of Acquisition of asset

a)

on any distribution of assets on the total or partial partition of a Hindu undivided family (HUF);

 

 

 

 

1).

 

It shall be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assesse, as the case may be, till the date of acquisition of the asset by the assesse.

 

2).

 

 If the previous owner had also acquired the capital asset by any of the modes above, then the cost to that previous owner who had acquired it by mode of acquisition other than the above should be taken as cost of acquisition.

b)

Under a  Gift or Will.

c)

By succession, inheritance or devolution.

d)

On any distribution of assets on the dissolution of a firm, body of individuals or other association of persons where such dissolution had taken place any time before

1 – 04 – 1987.

e)

On any distribution of assets on the liquidation of a company.

f)

Under a transfer of a revocable or an irrevocable trust

g)

By transfer from its holding company or subsidiary company.

h)

By transfer in a scheme of amalgamation

i)

By an individual house of a HUF giving him separate property to the assessee HUF any time after 31 – 12 - 1969

 

amibrahim



Joined: 03 Sep 2008
Posts: 376

PostPosted: Fri Apr 13, 2012 11:13 am    Post subject: Previous Owner under section 49 (1)..... Reply with quote

(*Being in circumstances specified under mode § 49 (1) (b)),

The Previous Owner: Mr.ABC has gifted to his son “PQR” a house site in 2010, which Mr ABC got it by a settlement deed in 1982, from his mother “XYZ” who bought it by a registered sale deed in 1958. In the above case, the “previous owner” is Mrs. XYZ. Mr. PQR has opted for “FMV” of the asset on the 1st day of April, 1981. In that area transactions are very few settlement deeds, areas are not regularized by Stamp Valuation authority until 2007; the guideline value as on 2010-11 was INR 160 per sq.ft. In such a situation, in the absence of evidence of previous transactions prior to 2007-08, the author has adopted the following method:

(Opinion): From the sales instances of Sub Registrar Office, sale price per sqft is arrived, which was then divided by a factor (from the table of Amount receivable at the end of a given number of years, for Re. 1 invested now at the rate of interest 4 percent. i.e., The factor of single payment compound interest @ 4 percent from 01/04/1981 to the respective date of transaction; e.g 30 years: SPCAF: 3.2434.). i.e. increase of land price at 4 percent every year. Reference Date Land Value per sqft divided by the single payment compounding factor is probable FMV as on 1/4/1981. (The arrived rate is suitably adjusted, considering the prevailing rate in the vicinage of 'KKK' Municipality  lilimt (6 km radius/ >1 lack population in 2011 census) .

The valuation Table followed is David Cormican Compounding and Discounting Table published by Construction Press London and New York and British Library Cataloguing Publication Data is: ISBN 0-582-30516-0; Book Title is Construction Management: planning and Finance, PP 279; First published in  1985. The on-line Table can be referred in A. M. Ibrahim Valuation Table in Excel; Refer Table –I, SPCAF (Single Payment Compound Amount Factor). ^http://www.caclubindia.com/forum/valuation-tables-258259.asp, ^http://www.lawyersclubindia.com/forum/Valuation-tables-85186.asp#.VpsC-FHzhdg & ^ http://valuersworld.com/newsite/forum/viewtopic.php?t=1457The Indian Authors Sarvashree A. K. Mitra Valuation Table Page No. 546, published by Eastern Law House, Calcutta 1986 and Roshan H. Namavati Valuation Tables Page No. 395 can also be referred. Shri. John A. Park’s valuation Table published by Eastern Law House in 1977 “Principles & Practice of Valuation (Land and Houses)” doesn’t have this category. {(It is unwritten rule that the method of comparable sales instances proximate in time, location, size and type of similar property is an ideal method to arrive at FMV of a reference property. Further submitted with respect that when India Government drive to eradicate black market money (Particularly, the 'white' and 'black' money invested in real estate) is accepted and sucessful, such rules are legally ideal}.



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PostPosted: Mon Apr 16, 2012 2:52 pm    Post subject: Cost of acquisition in mode other than S. 49 (1) Reply with quote

CRITERIA OF VALUATION:  

Gain arising on transfer of capital asset is charged to tax under the head “Capital Gains”. Income from capital gains is classified as “Short Term Capital Gains” and “Long Term Capital Gains” (Holding period is > 36 months).  Profits or gains arising from transfer of a capital asset are called “Capital Gains” and are charged to tax under the head “Capital Gains”. 

a) Capital gains tax valuation specified date is currently 1-04-1981. Capital asset acquired by the assesse on or after April 1, 1981. (Not being in circumstances specified under mode S. 49 (1) *** of Income-tax Act 1961, Cost of acquisition will be determined as under: 

*FMV of the asset on

April 1, 1981 or Cost of acquisition

Whichever is more?

--------------------------------------     X CII** for the year in which asset is transferred.        

CII for the year 1981-82

(i.e. 100). 

Indexed Cost of Improvement will be determined as under 

Cost of improvement (Ignoring

Any cost of improvement incurred

Prior to April1, 1981.                            

--------------------------------------     x CII for the year in which asset is transferred.        

CII for the year in which

 Improvement took place.

 b) Capital gains tax valuation specified date is currently 1-04-1981. Capital asset acquired by the assesse on or after April 1, 1981. (Not being in circumstances specified under mode S. 49 (1)*** of Income-tax Act 1961,  Cost of acquisition will be determined as under: 

* Cost of acquisition                              

--------------------------------------     X CII** for the year in which asset is transferred.        

CII for the year in which asset is acquired.  

Indexed Cost of Improvement will be determined as under:

 

Cost of improvement incurred by

the assessee                             

--------------------------------------     x  CII for the year in which asset is transferred.        

CII for the year in which

 Improvement took place.

 

Source: * Taxmann’s Direct Taxes Law and Practice as amended by Finance Act 2012.

** CII: Cost inflation Index. 

Strange Situation: Due to not normal, sudden increase of land prices by stamp valuation authority, general market buying capacity is below the guideline value in some urban and prescribed rural areas; many cases are registered with prevailing prices in the locality and stamp duty was paid as per stamp valuation authority’s guideline value. In such a situation, in the opinion of the author, the following procedure can be adopted.

 

“I have adopted the recorded sale price in the documents. The  land use classification is “Primary Residential”. The sale consideration recorded in the document for e.g.  is Rs. 9,00,000/= and stamp duty paid was Rs. 19,72,600/-. Where the capital asset is transferred is land or building or both, if the full value of consideration received or accruing is less than the value adopted or assessed by stamp valuation Authority, the value adopted by such Authority would be taken as the full value of consideration. 

I have considered value recorded in the document because what is the actual consideration that passed between the parties is a question of face to be determined, having regard to the facts and circumstances of that case. Further basic valuation register prepared and maintained for the purpose of collecting stamp duty cannot form the foundation to determine the market value which fact was supported in civil law cases.

---------------------------------------------------------------------------------------------------

(SItuation): Capital asset acquired by the assesse on or after April 1, 1981. (Being in circumstances specified under mode § 49 (1) (b)), Supra and originally acquired by the previous owner  before April 1, 1981. 

Cost of acquisition will be determined as under:

 

(a) FMV of the asset on April 1, 1981 or

     Cost of acquisition to the previous owner

     Whichever is more?

--------------------------------------     X      CII for the year in which asset is transferred.        

    CII* for 1981-81 (i.e., 100)

 

 (b ). Indexed Cost of Improvement:

     Cost of Improvement incurred by the assesse

    (Ignoring the expenses incurred prior to April 1, 1981

--------------------------------------     X      CII for the year in which asset is transferred.        

    CII* for the year in which

    Improvement took place. 

Capital asset acquired by the assesse on or after April 1, 1981 in one of the modes referred to in § 49 (1) ***** and originally acquired by the previous owner on or after April 1, 1981. 

(a) Cost of acquisition to the previous owner     .

--------------------------------------     X      CII for the year in which asset is transferred.         

CII for the year in which the

 Asset was first held by the assesse    

(b ). Indexed Cost of Improvement will be determined as under:

     Cost of Improvement incurred by the assesse

    And the previous owner

--------------------------------------     X      CII for the year in which asset is transferred.        

    CII* for the year in which

    Improvement took place

 

AM IBRAHIM

 

 



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PostPosted: Mon Apr 16, 2012 5:49 pm    Post subject: Re: When Potential Value of Land is considered Reply with quote



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PostPosted: Sat Aug 10, 2013 6:20 pm    Post subject: Cost Inflation Index Reply with quote

Cost Inflation Index for Income-tax (Capital gains) is notified every year by the CBDT, Government of India, Delhi. Income-tax law requires the CBDT to specify the Cost Inflation Index  for a financial year after factoring  75% of average rise in consumer price index for urban non-manual employees for the immediately  preceding financial year.

 Cost Inflation Index [Notification No.40/2013/F.No.142/7/2013-TPL] dated 6th June 2013.

 S.O. 1464(E) - In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes published in the Gazette of India, Extraordinary, vide number S.O. 709(E), dated the 20th August, 1998, namely:-

 

2. In the said notification, in the Table, after serial number 32” and the entries relating thereto, the following serial number and entries shall be inserted, namely:

 

Sl No

Financial Year

Cost Inflation Index

33

2013-14

939

 

 

Year

Cost Index

Year

Cost Index

1981-82

100

1998-99

351

1982-83

109

1999-2000

389

1983-84

116

2000-01

406

1984-85

125

2001-02

426

1985-86

133

2002-03

447

1986-87

140

2003-04

463

1987-88

150

2004-05

480

1988-89

161

2005-06

497

1989-90

172

2006-07

519

1990-91

182

2007-08

551

1991-92

199

2008-09

582

1992-93

223

2009-10

632

1993-94

244

2010-11

711

1994-95

259

2011-12

785

1995-96

281

2012-13

852

1996-97

305

2013-14

939

1997-98

331

2014-15

1024

For updates, Order Reference, Date etc., please follow this link: Tax Utilities > Cost Inflation Index

 

 



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PostPosted: Thu Sep 10, 2015 9:15 pm    Post subject: CBDT Cost Inflation Index for Capital Gains Tax Reply with quote

CBDT notifies Cost Inflation Index (CII) for the Financial Year 2015-16-. 

Notification No. 60/2015 - Dated : 24.07.2015: In exercise of the powers conferred by clause(v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, published in the Gazette of India, Extraordinary vide number S.O. 709(E), dated the 20th August 1998.In the said notification in the Table after serial number 34 and the entries relating thereto the following serial number and entries shall be inserted, namely: 

 

Sl. No

Financial Year

Cost Inflation Index

(1)

(2)

(3)

35

2015 -16

1081

 

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Sudarshan Patil



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PostPosted: Wed Jul 06, 2016 5:43 pm    Post subject: Capital Gain Reply with quote

Dear Sir,

Please explain the value of a property for 1981-82, if the property is sold in F.Y. 2008-09 for INR. 89,00,000/- and the property is ancestral property, it is an open N.A land, the N.A order is issued in 2007-08. The purpose of valuation is to compute the Capital Gain for the Assessee.

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surendersujni



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PostPosted: Thu Oct 11, 2018 3:00 pm    Post subject: Re: Capital Gains Tax Valuation (Immovable Property) Reply with quote

[quote="amibrahim"]

Capital Gains Tax Valuation. (Immovable Property)

(Keywords: Under Income-tax Act 1961 as amended from time to time, classification of Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG), Cost Inflation Index (CII), computation of LTCG, with illustrative examples are discussed)

Profits or gains arising from the transfer of a capital asset made in a previous year are taxable as Capital Gains under the head “Capital Gains”. Important ingredients of Capital Gains are existence of a capital asset, transfer of such asset and profits or gains that arise from such transfer, 

Source: ^ http://www.incometaxindia.gov.in/publications/4_compute_your_capital_gains/chapter2.asp#Inflation  

Short Term Capital Gains (STCG)

Long Term Capital Gains (LTCG)

Ordinarily transferring a capita asset held for 36 months or less gives rise for STCG.

Transferring a capital asset held for more than 36 months gives rise to LTCG.

Computation of Capital Gains STCG:

Full value of consideration – (Cost of acquisition + Cost of improvement + cost of transfer).

Computation of Capital Gains LTCG:

Full value of consideration received or accruing – (Indexed Cost of acquisition + Indexed Cost of improvement + cost of transfer).

 

Note: LTCG

 

Seller has to pay the STCG and LTCG.

Selling cost or cost of transfer to include brokerage paid, etc. Current LTCG tax for an individual or Hindu Undivided Family (HUF): 20 percent of capital gains.

Where indexed Cost of acquisition:

Cost of acquisition x

CII (Cost Inflation Index) of the year of transfer / CII of year of acquisition.

Indexed Cost of improvement:

Cost of improvement x

CII of the year of transfer / CII of year of improvement.

 Where the capital asset is transferred is land or building or both, if the full value of consideration received or accruing is less than the value adopted or assessed by stamp valuation Authority, the value adopted by such Authority would be taken as the full value of consideration.  The reasonable sale consideration or Stamp Authority valuation whichever is higher may be taken by the Stamp Authority.  

Capital gains tax valuation specified date is currently 1-04-1981. Any property acquired prior to the specified date, land value as on 1-4-1981 plus DRC (Depreciated Replacement Cost) of building, if any, as on the specified date would be the cost of acquisition. The cost of acquisition would be either cost or fair market value. The cost of acquisition needs to be appropriately indexed based on the prescribed CII for the Financial Year of purchase and sale, respectively as on 1-4-1981 or on the date of acquisition and improvement after 1-4-1981. Indexed Cost of acquisition means an amount which bears to the cost of acquisition the same proportion  as the Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee  or for the beginning on the 1st Day of April 1981, whichever is later.

Under Section 50D, where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or can not be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received as a result of transfer.

The assessee can opt for cost of acquisition or fair market value as on 1 – 04 -1981, where the capital asset became the property of the assesse before 1st April 1981 and ……… where the capital asset became the property of the previous owner before the 1st April, 1981 means the cost of the capital to the previous owner or the market value of the asset on the 1st day of April, 1981 at the option of the assessee. S. 55 (2) (b) (i) (ii) & (iii Liquidation).  

Property acquire after 1st April, 1981, only cost of acquisition should be taken. The cost of acquisition needs to be appropriately indexed based on the prescribed CII for the Financial Year of purchase and sale, respectively on the date of acquisition and improvement after 1-4-1981. 

 

“A Registered valuer is supposed to know as to which method or mode should be adopted for the purpose of valuing a particular land or a building having regard to a large number of factors involved therein.  The tax on capital gains does not  envisage that the valuation given must be true and exact market value………. We have earlier noticed that  one of the modes of computating the market value may be based on a judgment or award in respect of acquisition of similar land, subject of course to such increase or decrease thereupon as may be applicable having regard to the accepted principles laid down therefor and may be found applicable”. (Judgment of Hon’ble Supreme Court of India in Dilip N. Shroff v Joint Commissioner of Income tax and others, October, 2007, as reported in Indian Valuer Journal, October, 2007 PP 1214).

Full Value of consideration: This is the amount for which a capital asset is transferred. It may be in money or money's worth or a combination of both.

Where the transfer is by way of exchange of one asset for another, fair market value of the asset received is the full value of consideration. Where the consideration for the transfer is partly in cash and partly in kind, fair market value of the kind portion and cash consideration together constitute full value of consideration.

Cost of Acquisition: Cost of acquisition of an asset is the sum total of amount spent for acquiring the asset.

Where the asset was purchased, the cost of acquisition is the price paid. Where the asset was acquired by way of exchange for another asset, the cost of .acquisition is the fair market value of that other asset as on the date of exchange.

Any expenditure incurred in connection with such; purchase, exchange or other transaction e.g. brokerage paid, registration charges and legal expenses also forms part of cost of acquisition.

Sometimes advance is received against agreement to transfer a particular asset. Later on, if the advance is retained by the tax payer or forfeited for other party's failure to complete the transaction, such advance is to be deducted from the cost of acquisition.

WAIVER: The exemption of capital gains can be claimed by investing in full (One year before sale or within two years after sale or under construction house within three years after the date of sale) or partly by investing in the house and / or bonds and partly paying the proportionate income tax to the extent of capital gains, which have not been invested as above. The assessee should not own more than one house (Other than the new house) on the date of sale; or purchase or construction of the residential house. (Section 54F). 

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