Capital gains

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 August 2016 Agricultural land was purchased by A on April 9, 1997 for Rs. 78836 (including registration and stamp duty. On January 9, 2014, certain disputes with respect to the said land were settled for which expense of Rs.339740 was incurred. on November 2, 2015, entire land was sold for Rs. 90 lakhs. Sale consideration was divided into 2 parts: Owner was paid Rs. 60 lakhs and executors and administrators were paid Rs. 30 lakhs. For calculation of capital gains for AY 16-17, should consideration be taken as Rs. 90 lakhs or Rs. 60 lakhs and treat amount paid to administrators as part of expense directly attributable to the sale transaction.New property (residential house) was purchased on November 20, 2015 for 66,66,550. if entire consideration is consideration of Rs. 90 lakhs is considered, then capital gains after considering indexed cost woks out to Rs.83,29,467 resulting in tax liability of 20.6% whereas, if Rs. 30 lakhs is treated as expense or not a part of consideration, then capital gains would be Rs. 53,29,467 resulting in no tax. All figures and dates are at actuals
Thanks in advance

Querist : Anonymous

Querist : Anonymous (Querist)

03 August 2016 Further to the query, in this transaction 3 parties are involved. 1st is the seller , 2nd purchaser and third consenting party. Consideration received of Rs. 90 lakhs is divided into 2 parts viz. Rs. 60 lakhs to the owner and Rs. 30 lakhs to the consenting party as per pre determined payment schedule. Agreement specifies separate amounts payable to each one of the parties. Should the owner claim capital gains exemption based on consideration of Rs. 60 lakhs or of Rs. 90 lakhs. Fact of bifurcation is indicated in the agreement. Please advise.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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18 July 2024 In the scenario described, let's break down the considerations for calculating capital gains tax on the sale of agricultural land and the purchase of a residential house:

### Sale of Agricultural Land:
1. **Purchase Details:**
- Agricultural land purchased by A on April 9, 1997 for Rs. 78,836 (including registration and stamp duty).

2. **Expenses Incurred:**
- On January 9, 2014, certain disputes were settled for which an expense of Rs. 3,39,740 was incurred. This expense is considered as the cost of improvement or expense directly related to the transfer.

3. **Sale Consideration:**
- On November 2, 2015, the entire land was sold for Rs. 90 lakhs.
- The consideration was divided into:
- Rs. 60 lakhs to A (the owner)
- Rs. 30 lakhs to the executors and administrators.

### Capital Gains Calculation Options:

#### Option 1: Considering Rs. 90 lakhs as Sale Consideration
- **Indexed Cost of Acquisition:** Since the land was purchased in April 1997, indexed cost of acquisition will be calculated based on the Cost Inflation Index (CII) applicable for the year of sale and the year of purchase.

- **Capital Gains Calculation:**
- Sale Consideration: Rs. 90 lakhs
- Less: Indexed Cost of Acquisition (adjusting for the settlement expense): Let's calculate this step-by-step:
- **Cost Inflation Index (CII) for 1997-98:** Assuming CII as 331 (as per the latest available indices).
- **Indexed Cost of Acquisition:**
- Original cost including registration and stamp duty: Rs. 78,836
- Assuming CII for 2014-15 as 1024 and for 1997-98 as 331:
- Indexed Cost = Rs. 2,44,566 (approximately)

- **Capital Gains = Sale Consideration - Indexed Cost of Acquisition - Expenses**
- Capital Gains = Rs. 86,15,694

#### Option 2: Considering Rs. 60 lakhs as Sale Consideration for A
- If the agreement specifies Rs. 60 lakhs as the consideration payable to A, then A would declare capital gains based on this amount. The remaining Rs. 30 lakhs paid to the executors and administrators would not be considered for A's capital gains calculation.

#### Exemption Under Section 54:
- A can claim exemption under Section 54 if the entire sale consideration (considered for A) or part thereof is invested in purchasing a new residential house.
- In this case, A purchased a residential house for Rs. 66,66,550 on November 20, 2015.

### Conclusion:
- **Tax Liability:** Based on the calculations provided, if A chooses Option 1 and declares capital gains on Rs. 86,15,694, the tax liability would be 20.6% of the capital gains amount.
- **Exemption:** A can claim exemption under Section 54 if the conditions are met, considering either Rs. 60 lakhs or Rs. 90 lakhs as the sale consideration, depending on the interpretation of the agreement and the factual circumstances.

### Professional Advice:
For precise calculation and to ensure compliance with tax laws, it's advisable to consult with a qualified tax advisor or chartered accountant. They can review all the documents and provide guidance tailored to your specific situation, taking into account the latest tax regulations and case law interpretations.

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