Capital gains

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 November 2013 Sir

Kindly resolve the issue.

50% Building is used for business & 50% is used for let out.

Rental income is taken in House Property.

50% depreciation is claimed.Land part is bifurcated.
Land = 400000/- & building = 500000/-.

How will be capital gains calculated.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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27 November 2013 when u sell the building, the capital gains be calculated as any other sale of a capital asset. it doesnt matter if half of the property is being used for business and half for letting out.

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Querist : Anonymous

Querist : Anonymous (Querist)

27 November 2013 Sir

kindly correct me that

In business part, we claim depreciation, depreciable assets result Stcg

In rental part, its not depreciable asset, so it results in LTCG

so do we calculate both STCG & LTCG.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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27 November 2013 yes you have to. as long as you have been showing the partial asset as business asset and partial as house property, you will have to apportion consideration in appropriate ratio to each part and then compute LTCG on house property and STCG on depreciated part.

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Querist : Anonymous

Querist : Anonymous (Querist)

27 November 2013 Thanks a Lot sir.

Sir

Is there any rule regarding that if Sale value is more than WDV & COA, then there will be LTCG(ON 50% building used for Business).

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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18 July 2024 Yes, there is a rule regarding the classification of gains as long-term capital gains (LTCG) when the sale value of a property exceeds its Written Down Value (WDV) and Cost of Acquisition (COA). Here’s how it generally works:

### Context:
- **Asset Type**: Typically, this rule applies to depreciable assets like buildings used for business purposes.
- **Depreciation Claimed**: When a building is used for business purposes, depreciation can be claimed on it over the years, which reduces its WDV.
- **Sale Value vs. WDV and COA**: If the sale value of the building exceeds both its WDV (after accounting for depreciation claimed) and its COA (initial purchase cost), the excess amount is considered as LTCG.

### Explanation:
1. **Calculation of Capital Gain**:
- **WDV**: This is the value after deducting depreciation claimed from the original cost of acquisition (COA).
- **Sale Value**: The amount received from the sale of the building.
- **LTCG Calculation**: LTCG is computed as the difference between the sale value and the WDV (or COA, whichever is higher).

2. **Tax Treatment**:
- **LTCG Tax Rate**: Long-term capital gains on depreciable assets used for business are typically taxed at a special rate under the income tax laws.
- **Indexation Benefit**: If the asset has been held for more than 3 years, indexation benefits may apply to reduce the taxable LTCG. Indexation adjusts the purchase price of the asset for inflation, thereby reducing the taxable gain.

3. **Example**:
- Suppose a building was purchased for Rs. 1 crore.
- Over the years, depreciation of Rs. 30 lakhs was claimed, reducing the WDV to Rs. 70 lakhs.
- If the building is sold for Rs. 1.2 crores, the LTCG would be calculated as Rs. 1.2 crores (sale value) - Rs. 70 lakhs (WDV) = Rs. 50 lakhs.
- This Rs. 50 lakhs would be taxed as LTCG at the applicable special rate, typically 20% with indexation benefits.

### Conclusion:
When the sale value of a depreciable asset used for business exceeds its WDV (after depreciation) and COA, the excess amount is treated as LTCG. This rule applies to ensure that gains derived from the sale of such assets are correctly categorized and taxed under the income tax laws. It’s important to consult with a tax advisor or chartered accountant to accurately compute and report LTCG based on specific circumstances and compliance requirements.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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21 July 2024 do not waste your time with 11 year old queries. respond to current ones. its not a competition!!

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