Income tax

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Querist : Anonymous

Querist : Anonymous (Querist)

09 November 2013 (1) A person is having an old land on which he gets a house constructed in the year 2013 itself. What kind of taxes would be applicable? - LTCG / STCG / Business Income?

(2) Similarly a company is having a land since 1984. It develops a residential colony on this land and sells it. What kind of taxes the company needs to pay? Would it be capital gain or business income as well?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

10 November 2013 1) house constructed on an old land in the year 2013 itself. What kind of taxes would be applicable? - LTCG / STCG / Business Income?
Reply- As no transfer of property is taking place - No LTCG / STCG / Business Income
will arise.

(2)kinds of taxes the company needs to pay?

Reply :
Assuming ,the land had been treated as capital asset by the company in its earlier stage, its conversion into stock in trade will result into capital gains.(section 45(2)).
.
Subsequent to conversion of the land into stock in trade, any extra amount received on account of land transfer over and above the fair market value as on the conversion date, will be treated as business profit.
.

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2013 Thanks a lot Sir. I wish to modify my first question and seek your valuable guidance. If an individual has an ancestral land and he constructs a house on that in the year 2013. He sells the house in 2013 itself. What kind of tax incidence occurs - LTCG/ STCG/ Business Income?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

11 November 2013 In this case he will earn capital gains.
.
The same will be treated as long term capital gain.
.
In the indexed cost of land (to the previous owner) the construction cost can be shown as cost of improvement.
.

Querist : Anonymous

Querist : Anonymous (Querist)

12 November 2013 Thanks a lot Sir.

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