Capital gains

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Querist : Anonymous

Querist : Anonymous (Querist)

22 October 2017 Three individuals want to develop and sell their ancestral land. They formed a partnership firm and transferred their land to the firm. After incurring development expenses they sell the land. The firm pays the taxes on the profits earned. Are the partners exempt from the capital gains on the land transferred to the firm? Is the firm liable to pay capital gains tax or should it treat the profits as income from business? Can ths ecperts explain the provisions of income tax in this issue?

Dr. ShamsheerKhan

Dr. ShamsheerKhan (Expert)
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22 October 2017 Pay a flat rate of 20% as capital gain tax on capital gains and be free for further business.

Querist : Anonymous

Querist : Anonymous (Querist)

22 October 2017 Thank you sir. I understand that the firm can deduct all development expenses from the sale of land and pay 20% towards capital gains. Is it correct sir?

CA Rashmi Gandhi

CA Rashmi Gandhi (Expert)
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23 October 2017 Yes its correct......

Querist : Anonymous

Querist : Anonymous (Querist)

23 October 2017 thank you very much experts. i want to know if there will be any tax effect when the asset is transferred by the partners to the partnership firm? kindly clarify this point.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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23 October 2017 Please see section 45(3) to determine the capital gains tax in the hands of the
individual partner's.

Querist : Anonymous

Querist : Anonymous (Querist)

23 October 2017 Sir, i have read section 45(3)... as it is an ancestral property, can a capital asset be transferred to the firm at reduced or NIL price; so that the firm may pay the capital gains tax when the capital asset is developed and sold at a later date? kindly clarify sir.

Dr. ShamsheerKhan

Dr. ShamsheerKhan (Expert)
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23 October 2017 Capital gain = Sale Price - (purchase cost as per cost inflation index)

Dr. ShamsheerKhan

Dr. ShamsheerKhan (Expert)
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23 October 2017 In your case you can reduce the Sale Price to your partner ship firm but cannot make it nil.

Querist : Anonymous

Querist : Anonymous (Querist)

23 October 2017 Sir, you tell that Capital gain = Sale Price - (purchase cost as per cost inflation index); but here the firm is spending to develop the land and then selling it. Can the firm claim the development expenses which is huge?

Querist : Anonymous

Querist : Anonymous (Querist)

Dr. ShamsheerKhan

Dr. ShamsheerKhan (Expert)
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23 October 2017 The firm can deduct expenses. This it's separate account and not includes in cii.

Querist : Anonymous

Querist : Anonymous (Querist)

24 October 2017 so i understand that the firm can develop the land and sell it and pay the taxes after deducting the development expenses. is it libale for the payment of capital gains tax or tax at the maximum rate?

Querist : Anonymous

Querist : Anonymous (Querist)

Querist : Anonymous

Querist : Anonymous (Querist)

25 October 2017 so i understand that the firm can develop the land and sell it and pay the taxes after deducting the development expenses. is it libale for the payment of capital gains tax or tax at the maximum rate?