Mode of Computation of Capital Gains in respect of transfer of Immovable property by Non-resident Individual:

Section 48 of the Income-tax Act, 1961 provides for mode of computation of capital gains. This is explained in the form of illustration as under:

Notes:

1.  Cost of Acquisition / Improvement:

Cost of acquisition generally refers to the consideration paid for purchase of property. Cost of improvement generally refers to any capital expenditure incurred in making any additions or alterations to the immovable property.

2.  Indexed Cost of Acquisition / Improvement:

In cases where the immovable property is held for more than 24 months (i.e. in case of Long Term Capital Asset), you shall get the benefit of indexation and such a cost is referred to as ‘Indexed cost of acquisition / Indexed cost of improvement’.

The Indexed Cost of Acquisition / Improvement is a concept which grants deduction of a larger amount than actual Cost of Acquisition / Improvement considering the prevalent inflation index for the prescribed year as issued by the Government of India.

Indexation: It is a process by which the cost of acquisition/ improvement of a capital asset is adjusted against inflationary rise in the value of asset.

However, as per recent amendment in law, benefit of Indexation on long term capital asset is removed for transfer/sale of immovable properties on or after July 23, 2024 by Non-resident Individual

3.  Inheritance / Gift:

In case of inheritance / gift, the aforesaid cost of acquisition / improvement shall be the actual cost of the acquisition / improvement of the person from whom the asset is received. The period of holding will be considered from the Date of Original Acquisition till the date of sale.

However, there is difference of opinion regarding whether the benefit of Indexation will be given from the date of Inheritance/ Gift or from the Date of Acquisition of the person from whom the asset is received. The said proposition is litigative in India and is pending before the Court of Law.

4.  Property held prior to 1.4.2001:

Where the property has been acquired by the person before 1.4.2001 or where the property was acquired through gift or inheritance from the person who acquired the property before 1.4.2001, then the cost of acquisition is the higher of:

a.    Actual cost of acquisition of the property or;

b.    Fair market value as on 1.4.2001.

However, as per recent amendment in law, the fair market value as on April 1, 2001, has been capped as not exceeding the “stamp duty value’’ of the property as on April 01, 2001. Further, the term “stamp duty value’’ has been defined to mean the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

5.  Stamp Duty valuation:

In case of transfer of an Immovable Property, the Act provides that the actual sale consideration should be compared with the stamp duty value. Stamp duty value is the value assessed at time of registration of the sale of the property with the Registration Authority of the State Government in India. Accordingly, while calculating capital gains, the actual sale consideration is compared with the stamp duty value and higher of the two values should be taken as sale consideration.

However, as per recent amendment in law, only if the Stamp Duty Value exceeds the actual sale consideration by more than 110% of the sale consideration, then in such case while calculating Capital Gains, Stamp Duty Value shall be considered as Full Value of consideration for the purpose of computing the Capital Gains.

Illustrative Computation of Full Value of Consideration for the purpose of calculating Capital Gains in case of Sale of Immovable Property is as follows:

Particulars	Amount (in Rs.)	Amount (in Rs.)
Sale consideration (A)	100
110% of A (B)	110
Stamp Duty Value as on date of Sale (C)	120
Full Value of Consideration		120
Less: Expenditure incurred wholly and exclusively in connection          with    such    transfer        (e.g. Transfer Fees, Brokerage, Commission, etc.)		(10)
Net Sale Consideration		110

 

 

 

 

 

 

 

 

In the above case, the sale consideration (A) is less than the stamp duty value (C). Further, the stamp duty value (C) also exceeds 110% of the sales consideration (A). Hence, for the purpose of  computing Capital Gains, Full Value of consideration shall be stamp duty value as on date of Sale (C).

Particulars	Amount (in Rs.)	Amount (in Rs.)
Sale consideration (A)	100
110% of A (B)	110
Stamp Duty Value as on date of Sale (C)	108
Full Value of Consideration		100
Less: Expenditure incurred wholly and exclusively in connection          with    such    transfer        (e.g. Transfer Fees, Brokerage, Commission, etc.)		(10)
Net Sale Consideration		90

 
 
 
 
 
 
 
 

In the above case, the sale consideration (A) is less than the stamp duty value (C). However, the stamp duty value (C) is not more than 110% of sale consideration i.e. (B). Accordingly, for the purpose of calculating Capital gains, full value of consideration shall be sale consideration (A) only.

Note: In the above mentioned note wherever the term Stamp Duty Value/SDV is mentioned, it may also be interchangeably referred to as circle rate/Jantri rate, District Level Committee (DLC) rate, etc. based on the location of property.

- Updated 10/2024