Capital Gain on House Property

This query is : Resolved

CA. Shivanand (Querist)
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26 July 2010 My client has acquired the Plot under Urban Development Authority. As per the Authority a open plot allotted, cannot be sold without construction of the Residential House.
My client has made an agreement for Rs.8 Lakhs for sale of Plot and the purchasers has to construct the Residential House on the plot at his own cost. Thereafter the House will be transferred to purchaser.

Now the problem is what should be the Sale consideration ? What will be the cost of Acquisition. and is there any other problems for source of House construction cost.

subagana

subagana (Expert)
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26 July 2010 Sale consideration is 8 lacs only, since this is a violation of the actual agreement the agreement between your client and the purchaser is void - ab- intio.
However, once this agreement is executed then the sale consideration is 8 lacs only.
If your concern is about matching the market value of the land with that with one along the constructed building....
You need not worry about showing a higher consideration because, fixing of price for a property is absolutely the discretion of the owner and not governed by any law.

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CA. Shivanand

CA. Shivanand (Querist)
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28 July 2010 Thanks Sir,
Sir when the seller cannot sell the open plot he asked the Purchaser to construct the House at his own cost. after construction of House the Property will be transferred in the name of Purchaser. The seller will get only Rs.8 Lacs.

Now , while calculating capital gain the Cost of Construction of the House should also be considered and the source of Cost is not available with the Seller.

How to calculate the Capital Gain?

subagana

subagana (Expert)
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29 July 2010 The cost of construction is 100% borne by the purcahser, so instead of fixing a different price, it would be ideal to take it at net 8 lacs.
Just find out the basic expenses like fencing etc... done by the seller which can be considered for computation.
When a deduction available is not utilised it will not be questioned.
We can goahead with 8 lacs net consideration.

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