16 April 2012
The goons destroyed the construction/building, hence if the seller sells just the land (because the construction was completely destroyed), then can cost of construction still be considered/subtracted from capital gain?
Also, if a property is disrupted by local goons and the seller has to sell it at below circle rate, then is there a way to avoid paying the tax on the circle rate amount that is much higer?
16 April 2012
NO DED FOR CONSTRUCTION DESTROYED WILL B ALLOWED U CAN SHOW CAP GAIN AT LOWER THAN CIRCLE RATE AND MAKE AN APPLICATION TO AO UNDER SECTION 50C(2_)TO REFER THE CASE TO DVO CA MANOJ GUPTA JODHPUR 09828510543
20 July 2024
In the scenario where a construction/building is destroyed by local goons and the seller subsequently sells only the land, here’s how the tax implications would typically be considered in India:
### 1. Cost of Construction for Capital Gains:
- **Destroyed Construction**: If the building was completely destroyed by local goons and the seller decides to sell just the land (without rebuilding the structure), the cost of construction can still be considered for calculating capital gains tax.
- **Documentation Required**: The seller should have proper documentation and evidence of the cost incurred in constructing the building. This could include invoices, receipts, contracts with builders, and municipal records showing the details of the construction.
- **Capital Gains Calculation**: When calculating capital gains, the cost of acquisition of the property (which includes the cost of construction) is deducted from the sale proceeds of the land to determine the taxable capital gains.
### 2. Selling Below Circle Rate:
- **Circle Rate vs Actual Sale Price**: The circle rate (or guideline value) is the minimum value set by the government for the sale of a property. If the seller sells the property at a price below the circle rate due to the destruction or other factors (like disruption by local goons), the tax implications are as follows:
- **Tax on Circle Rate**: Under Indian tax laws, capital gains tax can be applicable on the circle rate if the sale price is below the circle rate and the difference exceeds a certain threshold (50% of the actual sale price in some cases). This is to prevent tax evasion by under-reporting sale prices.
- **Exceptional Circumstances**: If the property was disrupted by local goons and the seller has evidence (such as police reports, municipal records indicating the existence of the building, etc.), the tax authorities may consider the actual sale price rather than the circle rate for calculating capital gains tax.
### Steps to Handle the Situation:
- **Documentary Evidence**: Collect all relevant documents related to the construction (invoices, receipts, municipal records) and the disruption caused by local goons (police reports, legal notices, etc.).
- **Consult Tax Advisor**: Seek guidance from a qualified tax advisor or chartered accountant who specializes in property transactions and capital gains tax. They can help assess the situation, determine the correct valuation method (actual sale price vs circle rate), and ensure compliance with tax laws.
- **File Correctly**: When filing taxes, accurately report the sale price, deductions (including cost of construction), and provide supporting documentation to substantiate your claims.
### Conclusion:
In summary, despite the destruction of the building by local goons, the cost of construction can still be considered for capital gains tax purposes when selling the land. It's crucial to have proper documentation to substantiate the cost of construction and any disruptions that affected the sale price relative to the circle rate. Consulting with a tax professional will ensure that you handle the transaction correctly and minimize any potential tax liabilities.
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