Income tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 March 2018 I would like to clarify the following doubt

What will be Purchase cost in the following situations?

Mr.A was allotted the Land around 5000 Sq ft by TNHB in 1980 & the Sale Agreement excuted in 1985 After that he has construct some area.Then demolish the same in 2000 & settled the land to his 3 sons in 2003 .After that they have got approval for G+2 & construct around 3000 Sq ft .
Then they have sold the Entire Land & building in 2017 & share the proceeds equally.
Now what will be the Purchase cost to each vendor/Seller?

Whether advance Tax is must for LTCG ?

Is it possible to adjust the Mortgage Loan which was taken to contruct the Building from Sale Proceeds?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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20 March 2018 1. you need to obtain valuation report for value of land as at 1 April 2001

2. Cost of construction will be actual cost incurred in 2003.

3. no benefit available for adjusting mortgage loan

4. yes, advance tax is payable over remaining instalments.

Querist : Anonymous

Querist : Anonymous (Querist)

20 March 2018 Whether the Construction cost incurred by Mr.A on various date before settlement to his son can be claimed by his son cost of improvement?
i.e.(Constructed the building from 1980 to 2002 on various date But it was demolished in 2002)

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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31 July 2024 To determine the purchase cost and the treatment of various elements in the scenario described, let’s break down each aspect:

### 1. **Purchase Cost Calculation**

#### **Initial Purchase Cost:**
- **Land Allotment in 1980**: The initial cost for the land allotted by TNHB (Tamil Nadu Housing Board) in 1980 is considered as the purchase cost for calculating long-term capital gains (LTCG). If the exact purchase cost is not known, it is typically the allotment price or nominal amount mentioned in the records or agreements.

#### **Construction and Improvements:**
- **Construction and Demolition**: If Mr. A constructed a building and later demolished it, the cost of construction and demolition up to 2000 should be considered for the cost of improvements, provided the construction costs are documented.

#### **Settlement and Sale:**
- **Settlement to Sons in 2003**: The cost of the land and the construction up to 2000 will be the base cost for each son. When the property was settled to the sons in 2003, the cost of the land and construction till then is apportioned equally among the sons. This value will be their purchase cost for computing LTCG.

#### **New Construction (2017):**
- **G+2 Construction**: The cost of the new construction (G+2) after 2003 should be added to the purchase cost of each son. This is considered a cost of improvement and should be documented.

### **Calculation of Purchase Cost for Each Son:**
- **Initial Purchase Cost**: The base cost of the land as allotted.
- **Cost of Construction**: The cost of construction and improvements incurred up to the time of settlement.
- **Cost of New Construction**: The cost of construction for the G+2 building.

**Purchase Cost to Each Son**:
- Base cost of the land
- Share of construction costs up to 2000
- Share of the cost of G+2 construction

### 2. **Advance Tax and LTCG:**

- **Advance Tax**: Yes, advance tax is mandatory if the taxpayer's total tax liability exceeds ₹10,000 in a financial year. For LTCG on the sale of property, it is essential to compute the anticipated tax liability and pay advance tax accordingly.

### 3. **Mortgage Loan Adjustment:**

- **Adjusting Mortgage Loan**: Mortgage loans taken for constructing the building can be considered for the cost of improvement. However, the repayment of the mortgage loan is not directly adjusted against the sale proceeds. Instead, the construction costs incurred using the loan can be added to the cost of improvement.

### 4. **Claiming Cost of Improvement:**

- **Cost of Improvement**: Construction costs incurred by Mr. A before the settlement to his sons (up to 2000) can be claimed as cost of improvement by his sons. These costs should be documented and added to the purchase cost when calculating LTCG.

### **Summary of Tax Computation:**

1. **Determine the Total Cost to Each Son**:
- Land cost (as per the original allotment)
- Cost of construction and improvements up to 2000
- Cost of G+2 construction

2. **Calculate LTCG**:
- Sale Price - (Purchase Cost + Cost of Improvement)

3. **Advance Tax**:
- Ensure advance tax is paid as per the tax liability.

4. **Mortgage Loan**:
- The loan is part of the cost of improvement but is not adjusted directly from the sale proceeds.

For accurate calculations and compliance, it is advisable to consult a tax professional or financial advisor who can help you with detailed tax planning and compliance based on the specific details and documentation available.

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