GAIN FROM INSURANCE CLAIM

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This query is : Resolved

Velu (Querist)

20 December 2008 Dear friends,

I would like to have clarification on the following issue:

House property cost as per books Rs.40.00 lakhs - on entire damage of the building Insurance claim received for Rs.50.00 lakhs. Please give your opinion on taxability of the excess amount of Rs.10.00 lakhs

CA Sanjeev Kr Jain

CA Sanjeev Kr Jain (Expert)

21 December 2008 this would be treated as capital receipts hence not taxable

CA.Tarun Maheshwari

CA.Tarun Maheshwari (Expert)

21 December 2008 Its Taxable under the provisions of Capital GAins. Please take care of the following section.

Sec.45(1A) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of—

(i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or

(ii) riot or civil disturbance; or

(iii) accidental fire or explosion; or

(iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war),

then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.

Explanation.—For the purposes of this sub-section, the expression “insurer” shall have the meaning assigned to it in clause (9) of section 283 of the Insurance Act, 1938 (4 of 1938).]

K V Subba Rao

K V Subba Rao (Expert)

21 December 2008 Mr Maheswari has amply clarified the rule position.

However I suppose Acquisition Cost (after indexation) is considered but not WDV in the books of account for taxation purpose.

Guest

Guest (Expert)

21 December 2008 i agree with Mr. K V Subba Rao.

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