09 May 2013
We are a family consisting of mother, 2 sons & a daughter. We have inherited 14.5 cents of land purchased in 1961 for a total consideration of Rs.2500 & a house constructed thereon for Rs.60000 and additions & improvements made thereon in 1987 at a cost of 8 lacs.
Now we propose to enter into a Jt.Development agreement for construction of flats, under which 4cr is payable to us, of which 2cr to the mother and balance to be shared amongst 3 of us and the 3 of us are being allotted a flat each of 2000sq.ft and the balance extent of 7000 sq.ft will be sold by the promoter.
In the circumstances what would be the LTCG of each individual and best way to minimise the impact. Will the 3 of us be entitled for exemption even if we own other residential houses? Is there any serivce tax liability too?
09 May 2013
dear assuming all the persons have equal share in the property..
all the persons will be subject to tax seperetely..
there are two ways to show this transactions..
1. that every person convert his property into stock in trade before making any further construction and then capital gain computed as per provisions of Sec. 45(2)will be taxed in the year in which property would be sold and difference b/w the actual sale price and FMV( circle rate) as on date of conversion will be taxed as per normal slab rates treating the same as business income. the benefit in that case is that all the cost incur to develop the property will be allowed as business expenditure.. in LTCG all the capital gain is taxed @ 20%. while doing it we can avail the benefit of slab of 10% for all the persons seperetely. moreover you have a scope to claim some expense as deduction which are quite difficult to claim as cost of improvement.
2. the second option is continue to treat the asset as capital asset and cost incur will be treated as cost of improvement and Long term capital gain will be computed accordingly on the date of sale of property.in that case entire capital gain will be taxed @ 20%.
now in both cases( capital asset or business) value of property cannot be show below its circle rate.
keeping the above factors in mind take the decision.
CAclubindia
