capital gain?

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Vijay Krishnan (Querist)
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02 March 2017 iam Venu from Bangalore. Our family is big and includes uncle, aunty, and grandchildren. We have a huge Ancestral property that has been given to a developer to jointly develop villas. Each rightful member of the family will be receiving a villa and cash. My questions are: 1. is the cash received from the developers attract capital gain, considering it's an ancestral property. 2. does the market value of the villa attract any kind of tax payable by me. Thank you.

Dheeraj Somani

Dheeraj Somani (Expert)
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02 March 2017 Section 45(2) of Income Tax Act deals with the cases where a capital asset is converted into stock in trade. Whenever a capital asset is converted into stock in trade by an assessee it is deemed as transfer of capital asset and attracts capital gain provisions, in spite of the fact that the ownership of such capital asset doesn’t change by such conversion.
So ans. 1 yes cash received from developer is attract capital gain tax. But if you only give asset as capital contribution than capital gain calculated on the date of conversion of asset into stock in trade but payable only when asset sold.

Ans. 2 No market value of villa does not attract any tax because now this is treated as stock of business but conflict case laws on that matter require tax on unsold house property taxable under house property income as notional rent income.

Vijay Krishnan

Vijay Krishnan (Querist)
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02 March 2017 thanks Dheeraj for your inputs.

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