Capital gain tax

Documents required : 1. Settlement Deed 2. valuation report by a valuer to determine value of property as on 01.04.1981

Capital Gain : 10000000-indexed value of property with base value as per certificate in point 2 above

When a property is received on inheritance or as a gift, it is not taxable for the receiver. When the inheritor or the receiver of this gift of property, sells it, capital gains on the sale are taxable for the inheritor.

Cost of the property – The property did not cost anything to the inheritor, but for calculation of capital gain the cost to the previous owner is considered as the cost of acquisition of the Property.

Indexation of cost – Additionally, the year of acquisition of the previous owner is considered for the purpose of indexation of the cost of acquisition.

The Central govt notifies cost inflation index for every year. The indexed cost of acquisition is calculated by multiplying the actual cost of acquisition with C.I.I of the year in which the capital asset is sold and divided by C.I.I of the year of purchase of capital asset. Similarly the indexed cost of improvement can be calculated by using the C.I.I of the year in which the capital asset is improved. Where the capital asset was acquired before the year 1981 then the cost of acquisition shall be the fair market value or the actual cost of its acquisition which ever is higher. The Fair market value of a capital asset can be known by THE VALUATION OF THE REGISTERED VALUER.

It will also be a proof for the IT department, if you get it valued by the registered valuer that how you arrived at the fair value of the property sold.

for taxation purpose said this transaction as dividation of inherited property

1.1) there were specific provisions in the income Tax Act which state that in the case of a gift, the period for which the previous owner held the asset had to be taken into consideration for determining if the asset was a long-term or short-term one

1.2) in your case since property has been held by your family for number of years it would attract long term capital gains tax

1.3) In your case, you have an option of taking the actual cost of acquisition (if Known) or the fair market value of the property as on 1 April 1981,Accordingly, the cost of acquisition and improvement, if any, made subsequent to the purchase of property should be increased using the applicable Cost Inflation Index (CII) notified by the income tax department with respect to the base financial year (FY) and the FY in which improvement was made, if any, and the FY of sale of property. Since it is an old property acquired before 1 April 1981, CII of base FY82 (i.e. 100) should be considered for cost of acquisition. LTCG will be computed as difference between net sales proceeds and indexation cost of acquisition and improvement, if any

2.1 For proving Capital Gain transaction (if asked by Department or for kept in file purpose) u must have RD/gift deed in favour of you.

Hope this reply solve your query.

Capital Gains shall be calculated by deducting the Cost of acquisition to the previous owner(assuming you have received the property as family settlement which would result as inheritance) and in view of the Explanation 1(i)b to section 2(42A) which provides that in determining the period of holding by the assessee under a gift, the period for which the said asset was held by the previous owner shall be included. Since your property dates back to before 1980 the base year of indexation. You shall have to take into consideration the fair value of the property as on 01/04/1981 as cost of acquisition.

Capital gain would be

Sale consideration Rs. 1000000/-

Less:

Expense incurred wholly and exclusively for such transfer

Indexed cost of acquisition (cost would be the cost to the previous owner)

(Indexation shall be taken from the period the asset was held by the previous owner)

Balance amount shall be your capital gain.

For accurate working of your capital gain taxes you may contact at the following with details.

ria@manishnagpalandco.com

9825398290

Thanks & Regards,

Ria Nagpal

(Parter)

Manish Nagpal & Co

Chartered Accountants

Dear Sir,

Property received by way inheritance/will or gift, is not taxable in the hands of receiver. Howver, at the time of sale of that property, capital gain tax will be attracted.

Capital gain tax = Sale consideration minus Cost of acquisition

Cost of acquisition – for Property acquired before 1981, cost as on 1981 will be taken as the base and then indexation will be applied from 1.04.1981 to the date of sale. For getting the cost of property as on 1.04.1981, you have to get valuation report from the REGISTERED valuer.

Please feel free to call/revert in case you require any clarification on the above.

Thanks and Regards,

Abhishek Dugar

CA, CS, B.Com

Sorry I think your question is already answered

Dear Sir,

Yes you may have to take the value as on 01st April 1981, in order to calculate the Long Term Capital Gain for the Income Tax Authorities.

Trust this clarifies your query.

Feel free to call back/ get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP.