22 November 2013
Mr. A was purchased immovable property 6 years ago by transfer of power of attorney and registered this property before registrar 1 year ago. now he sells this immovable property. so, my question is that whether indexation is applicable while calculating capital gain on this property or not. if yes, please provide any case law on it.
18 July 2024
In India, indexation benefits are applicable for computing capital gains on immovable property when certain conditions are met. Here’s how indexation applies in your scenario:
1. **Indexation Benefit:** Indexation allows adjusting the cost of acquisition of a capital asset based on inflation. This adjustment helps in reducing the tax liability by increasing the cost of acquisition to account for inflation over the holding period of the asset.
2. **Conditions for Indexation:** - **Cost Inflation Index (CII):** The Income Tax Act provides Cost Inflation Index (CII) numbers for each financial year, which are used to adjust the cost of acquisition and improvement of the asset. - **Ownership Period:** Indexation benefit is available for long-term capital assets held for more than 3 years (previously 2 years for immovable property).
3. **Your Scenario:** - Mr. A purchased the immovable property 6 years ago by transfer of power of attorney (POA). - The property was registered before the registrar 1 year ago. - Now, Mr. A is selling the property.
4. **Applicability of Indexation:** - Since Mr. A has held the property for more than 3 years (6 years as per your scenario), it qualifies as a long-term capital asset. - Indexation will apply to the cost of acquisition of the property. In this case, the indexed cost will be calculated based on the CII for the year of acquisition and the year of sale.
5. **Case Law:** While specific case laws are not provided here due to limitations, you can refer to judicial decisions and rulings from the Income Tax Appellate Tribunals (ITATs), High Courts, and the Supreme Court of India. These decisions often interpret the application of indexation in various scenarios, including cases involving transfer of properties by POA.
6. **Consultation:** For precise advice and calculation of capital gains tax with indexation, it's advisable to consult a qualified tax professional or a chartered accountant who can provide personalized guidance based on the latest tax laws and rulings.
By leveraging indexation, Mr. A can effectively reduce the taxable capital gains on the sale of the property, thereby optimizing his tax liability in accordance with the provisions of the Income Tax Act, 1961.
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