Saturday Brain Storming Thought (11)

22/06/2019

Gain Tax Valuation

Any profit or gain that arises from the sale of capital asset is capital
gain - ie gain treated as income which needs to pat tax ie Gain Tax

Gain tax is not applicable to inherited property as there is no sale, only

a transfer of ownership

Capital Assets includes -

Land, building, house, vehicle, patents, trademarks, leasehold rights,
machinery and jewellery

Capital Asset not include -

Stock & raw material held for business, personal goods, agricultural
land, gold bonds issued by central government, special bearer bonds

Rural area - outside jurisdiction of municipality

Population more than 10000 & less than 100000 - 2 km distance

More than 1 Lakh & less than 10 Lakh - 6 km
More than 10 lakh - 8 km

Short term capital asset

Immovable Property held for 24 months or less period
Long term capital asset
More than 36 months for other assets and more than 24 months for
immovable property

In case an asset is acquired by gift, will, succession or inheritance, the

period for which the asset was held by previous owner is included
Long term capital gain tax for immovable property - 20%

Short term capital gain tax - capital gain added to income tax return
and the taxpayer is taxed accordingly to his income tax slab

Calculating Capital Gains

1) Full value consideration
2) deduct - expenditure incurred wholly and exclusively in connection
with such transfer, cost of acquisition, cost of improvement

In case of sale of house property

Deduct - brokerage or commission paid for securing purchaser, stamp
paper cost, travelling expenses in connection with transfer and for
inherited - cost of executor may allowed in some cases

Indexed cost of acquisition/improvement

As per cost inflation index to adjust for inflation - this increases one's
cost base and lowers capital gain

Exemption on capital gains

Section 54 - sale of house property on purchase of another house

property

Assessees can get an exemption from long term capital gains from the
sale of house property in up to two house properties against the earlier
provision of one house property with same condition provided capital
gains on the sale of house property must not exceed Rs 2 Crores

Conditions for availing this benefit

1) the new property purchased 1 year before Sale or 2 years after the
sale of property
2) the gains can also be invested in the construction of property but
construction must be completed within 3 years from the date of sale
3) exemption can be taken back if this new property is sold within 3
years of its purchase/Completion of construction

The gains can be deposited in a PSU banks or other banks as per the
Capital Gains Account Scheme, 1988. This deposit can then be claimed
as an exemption from capital gains and no tax has to be paid on it

Saving tax on sale of agricultural land

1) agricultural land in rural area is not considered as capital asset and

hence any gains from its sale are not chargeable to tax
2) if the agricultural land hold as stock and trade then gains are
taxable
3) capital gains on compensation received for compulsory acquisition
of urban agricultural land are tax exempt under section 10(37) of
income tax act

Exemption on capital gains from transfer of agriculture land used for

agricultural purpose - section 54B

The exempted amount is for the investment in a new asset or capital

gain, whichever is lower. You must reinvest into a new agricultural land
within 2 years from the date of transfer
New agricultural land which is purchased to claim capital gains
exemption, should not be sold within a 3 years from date of its
purchase

If the amount deposited as per Capital Gains Account Scheme was not
used - treated as capital gains of the year in which the period of two
years from date of sales of land expires

Avinash Kulkarni
9822011051

Chartered Engineer
Govt Approved Valuer
IBBI Read Valuer