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:
|
Particulars
|
Amount
(in Rs.)
|
Amount
(in Rs.)
|
|
Full value of sale
consideration
|
|
100
|
|
Less: Expenditure incurred wholly and exclusively in
connection with such transfer (e.g.
Transfer Fees, Brokerage, Commission, etc
|
|
(5)
|
|
Net Sale Consideration
|
|
95
|
|
Less: Cost of Acquisition/ Indexed Cost of Acquisition
|
35
|
|
|
Less: Cost of Improvement/ Indexed Cost of Improvement (E.g. Renovation, painting, addition of
floor, etc.)
|
15
|
(50)
|
|
Capital Gains
|
|
45
|
|
Less: Exemptions under Capital Gains (if any)
|
|
(10)
|
|
Taxable Capital Gains
|
|
35
|
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: is a
process by which the cost of acquisition/ improvement of a capital asset is
adjusted against inflationary rise in the value of asset.
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.
Updated 10/2022