Cost of acquisition based on Sale Deed value

Cost of acquisition based on Sale Deed value

I booked an under-construction apartment last year (2014) in Bangalore. At that point, Builder sent me two different agreements - a sale agreement (that described the UDS) and a construction agreement, which roughly divided the total costs into two halves - land value and construction value.

Now, the apartment is closed to possession and builder is forcing me to do a sale deed just based on the sale agreement (which is based on UDS - roughly half of the total cost). I am not sure why the registration+stamp-duty charges are being calculated on land value (and not the total cost=landValue+constructionValue). Isn't this illegal ?

I am asking this because if tomorrow I sell the property my cost of acquisition of the property will be shown as the one on the sale deed (which i guess will be the land value ?). This will increase my capital gains by a huge amount. Is there a way to include construction costs into my cost of acquisition or does it always have to be the sale deed value?

Asked 9 years ago in Capital Gains Tax

I agree that this method of splitting purchase consideration into land value and construction value is unethical to certain but is not illegal, as you are getting title on undivided share of land, the sale value of which is based upon the stamp duty value. The rest is the cost of construction that goes to the builder as his revenue for his services.

Now coming to your question, the property you are acquiring is an apartment, which comprises the undivided share of land and the cost of construction of the flat. Hence, your cost of acquisition of your property is the value as per the sale deed, evidencing the sale of land and the cost of construction as per the construction agreement. As and when you sell the property, the total cost will be considered as the cost of acquisition and the sale value in excess of such cost of acquisition, after indexation, will be your long term capital gains, if you sell it after 3 years from the date of your acquisition.

So by executing the sale deed and the construction agreement, you will not lose anything.

B Vijaya Kumar

CA, Hyderabad

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Thank you sir for your quick response.
My main confusion is as follows: Builder is saying that since there's news that guidance value in Bangalore may increase from October 1, i'll have to pay registration+stamp-duty charges based on either the land value or new guidance value (whichever is higher).

There is also the law that you can't register your property lower than the guidance-value/circle-rate.
Does that mean, if the guidance value turns out to be higher than UDS value, the sale deed will show the guidance value ? If the sale deed shows the guidance value, one may inflate the cost of acquisition as the sum of guidance value (which is higher than UDS value) + cost of construction even though he really paid UDS value + cost of construction.

On the other hand if sale deed just shows the UDS value , won't it be against the law (that require you to register your property at or higher than the guidance value).

Please clarify. Thanks for your help!

Asked 9 years ago

Iam sorry for the delay in my response. Lot of CAs had hectic time to meet the tough dead line of filing tax audit returns by 30th Sept.

I hope that there is no increase in the guidance value from 1st Oct, as apprehended by you/your builder and the old guidance value continues to hold good.

The minimum value that should be shown as the sale consideration in the sale deed is the guidance value. If its more, there is no issue, except that the stamp duty will be more.

If the sale value is less than the guidance value, the seller will have to pay capital gains as if the sale price is the guidance value. In the case of buyer, the difference between the guidance value and the sale value will be considered as deemed income.

B Vijaya Kumar

CA, Hyderabad

1018 Answers

124 Consultations

Talk to B Vijaya Kumar

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