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Capital gain

Divyansh (Student CA Final ) (48 Points)

11 March 2014

A sold land to B for Rs. 1 cr. and he got 50 L from B after this B was not able to fullfill A's conditions so A forfeited everything, land as well as money both are with A, now A sold this land to C for Rs 1.25 Cr... on what amount A is liable to pay tax.. should he pay the tax on 50 L which he forfeited as well or just on 1.25 cr which is current sale amount.... lets take purchase price was jus Rs.1..

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5 Replies

Z ( ) (2960 Points)
Replied 11 March 2014

In this case the cost of acquisition will be decreased by the sum forfeited So your purchase price would become nil Since 49,99,999 is received extra then this amount is a capital receipt not chargeable to tax (theres a case law on this) HOW YOU GET PURCHASE OF RS 1? I suppose it was because seller in past has already forfeited money to the extent of cost

Divyansh (Student CA Final ) (48 Points)
Replied 11 March 2014

I just assumed Rs. 1... What if the cost of acquisition is 90 L? Will my cost of acquisition become 40 L now?

Divyansh (Student CA Final ) (48 Points)
Replied 11 March 2014

And 1 more thing 50L will b reduced from the amount after indexation or before indexation

Arpit Pachisia (CA) (734 Points)
Replied 11 March 2014

Hello Divyansh,

Answer to your first question, yes if the cost of acquisition is 90 lacks previously than after forfeiting the amount of Rs.50 lacks, your new cost of acquisition will be Rs.40 lacks.

Regarding second question, now you will get the the benefit of indexation on Rs.40 lacks. Hence Rs 50 lacks doesn't include any amount of indexation in it. It will be reduced before any indexation.

Thanking You