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Capital gains

Neha Bhattar (none) (170 Points)

26 April 2014

A SOLD A LAND TO B FOR 60 LACS... REGISTRY WAS DONE FOR RS 4 LACS... A SURVEY WAS CONDUCTED IN WHICH THIS LAND WAS VALUED FOR RS 20 LACS... NOW, WHAT WILL BE THE CAPITAL GAINS... N HOW MUCH WILL THE SELLER HAVE TO REINVEST TO AVOID CAPITAL GAINS... WIL THE DIFFERENCE OF 16 LACS ( 20-4 ) BE TREATED AS A GIFT I N THE HANDS OF B... PLEASE GUIDE... THANKS IN ADVANCE

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9 Replies

Arpit Pachisia (CA) (734 Points)
Replied 26 April 2014

Hello,

As in the case provided the land is sold for Rs. 60 lacs but registry is made for Rs. 4 lacs only.

Here when survey was conducted by the ITO, they valued the land for Rs. 20 lacs. So the difference between the indexed cost and Rs. 20 lacs will be considered as the amount of Capital gain. Seller had to reinvest the whole amount equal to the capital gain.

difference amount of Rs. 16 lacs will not be considered as gift in the hands of B, rather he had to pay capital gain on the same property.

Thanking You

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CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 27 April 2014

registry is a kind of cost incurred by purchaser nd he will claim for that. as said.. stamp valuation of property is 20 lakh ..nd actual sale price is higher than that hence sale price would be taken as 60 nd diff. of sale nd index cost of acq. shall be capital gain ...and whole amout of CG shall be either invested or to be deposited in capital gain scheme account.

Neha Bhattar (none) (170 Points)
Replied 27 April 2014

Now... When B sells this land, what will be his coa... For a second if we forget about 60 lacs.... Suppose 4 lacs is the sale consideration n registry value and ito valued it for 20 lacs.... Will we take coa as 20 lacs or 4 lacs

CA Ronak Doshi ( ) (234 Points)
Replied 27 April 2014

Dear Neha, B's Cost of Acq will be the amount which B is paying, as in your case Rs.4 lacs... Since the actual payment made by B is just 4 lacs.. And regarding the revised value of 20 lacs which ITO valued is the income which seller and buyer tried to escape through mutual understanding and hence the department does not provide the benefit of such increased value to buyer. I hope this might help you. . Regards, Ronak.

caaspirant (349 Points)
Replied 27 April 2014

Cost of acquisition will be......actual sale consideration or stamp duty value whichever is more u/s 50C. Land is this urban land then capital asset chargeable to tax, if rural agricultural land not treated ad capital asset and hence not taxable. I cannot tell u the amount of gain because you have not specified period of holding, Cost of acquisition, wether it was purchased or recieved as gift etc. Now foe exemption many sections can be applied in absence of information i cannot tell you the ans.

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Neha Bhattar (none) (170 Points)
Replied 28 April 2014

In this case, A sold to B for 4 lacs on papers... While stamp duty value is 20 lacs.the difference between 4 lacs and stamp value 20 lacs will be treated as gift ( income frm other sources) in the hands of the purchser B. I want to know that tax on this excess amount will be payable when..??? At the time of purchase itself or while filling return.... One more question.... If we are paying tax on this excess amount, then when we sell this land after few years.. Why cant we take 20 lacs aa the cost of acq. ....???? Plz clarify.... N thanx everyone for the above replies

ravi bansal (M.Com) (34 Points)
Replied 29 April 2014

Dear Neha, Tax is payble at the time of purchase u/s 56(2)(vii) as per new amendment. And when B will sell the same COA will be taken as 20 Lacs.

Neha Bhattar (none) (170 Points)
Replied 29 April 2014

ravi... are u sure... canu please refer the section where itis written clearly.... in my opinion also 20 lacs should be taken as coa... bcoz we will be paying tax on the difference amount... and later when we sell... if we take 4 lacs as the cost of acquisition, it will result in double taxation....