CAPITAL GAINS TAX III

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 is indexed on the date 1-04-1981 on asset value of Rs.100 as base. 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.

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 cannot 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.

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 54).

Cost Inflation Index is notified every year by the CBDT, Government of India, New Delhi.

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

Sl No	Financial Year	Cost Inflation Index	Sl No	Financial Year	Cost Inflation Index
1	1981-82	100	18	1998-99	351
2	1982-83	109	19	1999-2000	389
3	1983-84	116	20	2000-01	406
4	1984-85	125	21	2001-02	426
5	1985-86	133	22	2002-03	447
6	1986-87	140	23	2003-04	463
7	1987-88	150	24	2004-05	480
8	1988-89	161	25	2005-06	497
9	1989-90	172	26	2006-07	519
10	1990-91	182	27	2007-08	551
11	1991-92	199	28	2008-09	582
12	1992-93	223	29	2009-10	632
13	1993-94	244	30	2010-11	711
14	1994-95	259	31	2011-12	785
15	1995-96	281	32	2012-13	852
16	1996-97	305	33	2013-14	939
17	1997-98	331	34

Cost of Acquisition with reference to certain mode of Acquisition:

Sl. No	Where the capital asset became the property of the assesse.	Cost of Acquisition of asset
(a)	Under a Gift or Will.	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 assessee, 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)	On any distribution of assets on the total or partial partition of a Hindu Undivided Family
(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

Capital gains Tax Deductible for Agricultural land & Industrial undertakings, etc.:

Agricultural land	Compulsory Acquisition of land and building of an Industrial undertakings	Shifting from Urban Area to rural or Special Economic Zones
Section 54B Capital gains on transfer of land used for agricultural purpose not to be charged in certain cases:	Section 54D Capital gains on compulsory acquisition of land and buildings not to be charged in certain cases:	Section 54G Capital gains on shifting industrial undertakings from urban area to rural area not to be charged in certain cases:
If invested in agricultural land within two years after the date of sale. Prior to sale, the sold land must be put to agricultural use for at   least two years by the assesse or his father. The net selling price can be claimed for exemption.	If invested within three years after the date of compulsory acquisition in establishing the old industry or set up a new industry. Deduction to include the cost of land or building or any rights in that as the case may be. The investment can be claimed for exemption subject to satisfy some conditions.	If invested within one year before and three years after the date of shifting in establishing the industry complete. Such amount can be claimed for exemption subject to satisfy some conditions.

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)

For Property acquired 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.

Valuation by Cost of Acquisition	Valuation by FMV (Fair Market Value)
Selling Price/rate Say S: CU (Cost per unit sq.ft or sq.meter etc) 5,000	Selling Price Say S: CU 5,000
Indexed acquisition cost Say C:(70+100) x 447/100 = CU 760	Indexed acquisition cost Say C: (95+100) x 447/100= CU 872
Indexed cost of improvement Say D: 120 x 447/133: CU 403	Indexed cost of improvement Say D: 120 x 447/133: CU 403
Selling expenses Say E: CU 113	Selling expenses Say E: CU 113
Capital Gains: S (C+D+E): CU 3,724	Capital Gains: S (C+D+E): CU 3,612

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 computing 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.

Disclaimer: In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.

It may be noted that nothing contained in this note should be regarded as our opinion.  Professional advice should be sought for applicability of legal provisions based on specific facts. Though reasonable efforts have been taken to avoid errors or omissions in this note we are not responsible for any liability arising to readers directly or indirectly due to any mis-statements or error contained in this note. It must be noted that the views expressed in the note are based on our understanding of the law and regulations as published by the Government authorities and we may or may not agree or subscribe to such views. This blog, between contributor and readers, shall not create any attorney-client relationship.