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Capital gain

Anshika (-) (178 Points)

24 July 2015

My client has 80 lakh property which was mortagage to bank and now has 1crore rupees on me to be paid to bank. If the bank now sells the property will capital gain provision applicable on my client. If my client sells the property for 80 lakh which was acquired at 6 lakh will capital gain be levied whereas he has 20 lakh still to be paid to bank. Please reply my friends..

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8 Replies

Rajagopalakrishnan R (PARTNER) (1417 Points)
Replied 25 July 2015

The amount payable on the mortgage of the property and its interest will have no impact on the capital gains of the property. ( Assuming the mortgage was voluntarily created by the present owner of the property).

Also whether the bank sells the property after attachment or the owner himself sells, there is no change in capital gains impact. If the bank realises more than what is due to it it is legally bound to return it to the owner. The sale consideration alone willbe considered for calculating capital gains.

Z ( ) (2960 Points)
Replied 25 July 2015

Although mortgaging per se is not a transfer but when this property will be sold, ofcourse there will be a transfer . Property will be legally transferred and any excees money recovered over the debt will be refunded.

Yes, cap gain provisions applicable in second case also.

Anshika (-) (178 Points)
Replied 25 July 2015

1. So in either if the case whether bank sells the property or the client,capital gain shall be levied? 2.Also certain amount was spent on construction of house on the property it will also be added to the cost of acquisition of house property? 3.Loan amount will not affect the capital gain provision? 4. What about the loan still pending after sale of the property?

Anshika (-) (178 Points)
Replied 25 July 2015

1. So in either of the case whether bank sells the property or the client,capital gain shall be levied? 2.Also certain amount was spent on construction of house on the property it will also be added to the cost of acquisition of house property? 3.Loan amount will not affect the capital gain provision? 4. What about the loan still pending after sale of the property?

Anshika (-) (178 Points)
Replied 25 July 2015

Z ( ) (2960 Points)
Replied 29 July 2015

1. Yes

2. Cost of IMPROVEMENT (Refer S.48 for indexation and other details)

3. No

4 It should be repaid , client will have to take permission from bank .

48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :—

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the asset and the cost of any improvement thereto:

Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company :

Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted:

Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government :

Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section :

Provided also that no deduction shall be allowed in computing the income chargeable under the head "Capital gains" in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.

Explanation.—For the purposes of this section,—

(i) "foreign currency" and "Indian currency" shall have the meanings respectively assigned to them in section 2 of 95[the Foreign Exchange Management Act, 1999 (42 of 1999)];

(ii) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf;

(iii) "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later;

(iv) "indexed cost of any improvement" means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place;

(v) "Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the [Consumer Price Index for urban non-manual employees] for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.