15 August 2014
URGENT dear sir, i have sold a building for Rs. 12 lakh during FY 2013-14 which i constructed for Rs. 4.5 lakh during 1992 on a land purchased for 1.2 lakh during 1991.i want to know:- 1)sec 50 shall apply to this case since rate of dep has been specified for building? 2)if not , can indexation be allowed on coat acquisition of land from 1991 and on coat of construction from 1992 ? NOTE : it is to be noted that i have no proof of cost of construction which i incurred on building .
18 July 2024
In your case, since you sold a building during FY 2013-14, here’s the analysis of the tax implications based on the information provided:
1. **Applicability of Section 50:** - Section 50 of the Income Tax Act, 1961, deals with special provisions for computation of capital gains in case of depreciable assets. - Buildings are considered depreciable assets if depreciation has been claimed on them. Since you mentioned that depreciation has been specified for the building, Section 50 is applicable.
2. **Allowability of Indexation on Land and Building:** - **Land (Acquired in 1991):** For land, indexation is not applicable because land is considered a non-depreciable asset and indexation benefits are not available for it. - **Building (Constructed in 1992):** Indexation can be applied to the cost of construction incurred on the building. Indexation adjusts the purchase cost of the asset to account for inflation over the years since its acquisition or construction. - However, you mentioned that you do not have proof of the cost of construction incurred in 1992. In such cases, the Income Tax Act provides provisions for estimating the cost of acquisition or construction if the taxpayer does not have documentary evidence. The tax authorities may consider reasonable estimates based on contemporary valuation reports or other relevant factors.
3. **Capital Gains Calculation:** - **Sale Consideration:** Rs. 12 lakh (the amount you received from the sale of the building) - **Cost of Acquisition:** - Land (1991): Rs. 1.2 lakh - Building (1992, estimated without proof): Rs. 4.5 lakh - **Indexed Cost of Acquisition:** Since indexation is applicable only to the cost of construction (not land), the indexed cost of construction (1992) needs to be calculated using the Cost Inflation Index (CII) notified by the Income Tax Department for relevant years. - **Long-term Capital Gain:** Long-term capital gain is computed as Sale Consideration minus Indexed Cost of Acquisition minus any other eligible deductions under the Income Tax Act.
4. **Documentation and Proof:** - It’s crucial to maintain proper documentation and evidence of transactions, including purchase of land and construction of building, for future reference and tax compliance.
5. **Consultation:** - Since your case involves estimation of construction cost without proof and application of indexation, it’s advisable to consult with a tax advisor or a chartered accountant. They can assist in determining the appropriate indexed cost and preparing the capital gains computation accurately. - They can also provide guidance on the requirements of tax documentation and any potential tax-saving strategies available to you.
In summary, while Section 50 applies due to the depreciation claimed on the building, indexation benefits can be applied to the cost of construction (1992) of the building. However, proper estimation and documentation of the construction cost will be essential for computing accurate capital gains and complying with tax regulations.
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