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Capital gain due to govt. compensation

babugr (dgm) (509 Points)

02 January 2016

Dear experts,

Kindly advise me on the following, one of my friends got compensation from state govt. due to road widening jobs, the house was a gift given by his mother in 1986, later he made some renovations costing Rs.3 lacs each in 1986 and 2002 respectively, about 25 sq.yds land is lost due to this and adequate compensation was given by state govt. to all the owners including him who were affected. Balance house is with him and the compensation received in Oct,2015. The govt issued a big notice indicating all the details and did not deduct TDS. How do we calculate capital gain on partial (acquisition by govt.) land and construction lost. I tried using CII of 1986 & 2002 for 3 lacs, the amount is big for tax purposes and small for buying a residential flat, he does not own a house at this moment.

thanks

G.R.Babu

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3 Replies

Z ( ) (2965 Points)
Replied 02 January 2016

First we need to compute the cost of acquisition of the house.

Since the house was acquired by way of gift, the cost of acquisition, in terms of S.49(1), to the assessee shall be the cost of acquisition to the previous owner.

If that house was acquired prior to 01.04.1981 then we need to find the fair market value of the property as on that date and if its more than the original cost of acquisition then the fair market value as on 01.04.1981 shall be taken as the cost of acquisition.

To determine this fair market value , you may approach to a registered valuer.

3 Lacs for each of those years will be considered as Cost of improvement and it also needs to be indexed.

Add all these values and multiply it with the percentage of area taken away by the govt. This is your costs for computing capital gain.

If you can not invest in new house and still want to claim exemption, you might want to consider claiming exemption u/s 54EC by investing in bonds of NHAI/RECL. This is to be done within 6 months from date of TRANSFER.

Let us know if you need to know anything else.

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babugr (dgm) (509 Points)
Replied 02 January 2016

Thank you Z for your quick response. the govt. paid a lumpsum (say 10 lacs) in which they gave a break up of cost of structure + land , compensation and some amount towards delayed payment and some 2 or 3 more components, should I use the lumpsum figure as capital gain amount or only cost of structure+land + compensation

Z ( ) (2965 Points)
Replied 02 January 2016

Prima facie it appears that full amount is a consideration but before I conclude that I would like to see the original documents. Its always better to keep some precautions.

You may mail it to me