Capital gains

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 February 2013 Mrs. A had painted a painting and gifted to my family 20 years back. I inherited it from my father and hence, there is no cost to it even at the time before inheritance.
The painting was sold for few crores say Rs 5 crores and I bought a bunglow for Rs. 4 crores. Paid stamp duty of around 30 lacs. Got the bunglow repaired for around Rs. 10 lacs. What should be my taxable income?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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08 February 2013 You have to pay tax @ 20% on the amount remained uninvested out of Rs. 5 Cr.

Querist : Anonymous

Querist : Anonymous (Querist)

14 February 2013 Dear CA Bafna,

Can I claim repair/ paint etc. as cost to acquire the assets and deduct from sale consideration? If yes, what is the time subsequent to purchase of Banglow these expenses can be claimed?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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18 July 2024 In the scenario you've described, let's break down the tax implications and considerations step by step:

### 1. Taxable Income Calculation:

#### Sale of Painting:
- **Sale Consideration:** Rs. 5 crores.

Since the painting was inherited from your father, the cost of acquisition for capital gains tax purposes will be taken as the fair market value (FMV) as on the date of your father's passing (i.e., date of inheritance).

- **Inherited Cost:** As per your statement, there is no cost associated with the painting before inheritance. Therefore, the cost basis for capital gains calculation will be considered as the FMV at the time of inheritance.

- **Capital Gain:**
- **Capital Gain = Sale Consideration - Cost of Acquisition**
- In this case, assuming the FMV of the painting at the time of inheritance was not specified, let's proceed with the assumption that it's considered to be the same as the sale consideration for simplicity (Rs. 5 crores).
- **Capital Gain = Rs. 5 crores - Rs. 0 (assuming inherited cost) = Rs. 5 crores**

#### Purchase of Bungalow:
- **Purchase Price of Bungalow:** Rs. 4 crores.
- **Stamp Duty:** Rs. 30 lakhs (Rs. 0.3 crores).
- **Repairs:** Rs. 10 lakhs (Rs. 0.1 crores).

### 2. Tax Implications on Capital Gain:

#### Capital Gain Tax:
- The capital gain of Rs. 5 crores from the sale of the painting will be taxable under the head "Capital Gains".

#### Cost of Acquisition of New Asset (Bungalow):
- You can include the purchase price of the bungalow, stamp duty paid, and any expenses directly related to the improvement or acquisition of the bungalow as part of the cost of acquisition of the new asset.

- **Indexed Cost of Acquisition:** For computing capital gains, the indexed cost of acquisition of the painting (if applicable, based on the FMV at inheritance) and the cost of acquisition of the bungalow can be adjusted for inflation using the cost inflation index provided by the Income Tax Department.

#### Deduction of Expenses:
- **Repairs:** The repairs expenses of Rs. 10 lakhs can be added to the cost of acquisition of the bungalow. These expenses should be directly related to the improvement of the property.
- **Painting Expenses:** Since the painting was sold, any expenses related to its creation or maintenance are generally not deductible against the capital gain unless they directly relate to the sale process itself.

### 3. Timing of Claiming Expenses:
- **Repairs:** These expenses can be claimed as part of the cost of acquisition when computing capital gains tax at the time of sale of the bungalow in the future.
- **Stamp Duty:** Stamp duty paid can also be added to the cost of acquisition.
- **Indexation:** If applicable, indexation benefits can be applied to the cost of acquisition of the painting and the bungalow to adjust for inflation.

### Conclusion:
Your taxable income from the sale of the painting would be the capital gain of Rs. 5 crores. You can mitigate the capital gains tax liability by properly including the cost of acquisition of the bungalow along with allowable expenses like stamp duty and repairs. Ensure that you maintain proper documentation and consult with a tax advisor to accurately compute your capital gains tax liability and take advantage of available deductions and exemptions under the Income Tax Act, 1961.

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