Very very very urgent -capital gain

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 March 2015 sir, if person has purchased land for Rs. 10,00,000 lacs but at the time of selling can we consider guideline value as per registration department which is very higher than actual purchase cost

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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16 March 2015 Guide line value as per registration department may be considered as purchase cost provided it is a case of recent past on which section 50C of income tax is applied.

Querist : Anonymous

Querist : Anonymous (Querist)

16 March 2015 Seetharaman sir person has received this property through settlement agreement from his father for Rs. 10,0000 on 29 june 2007
so sir this is possible if we are cinsidering guideline value then capital gain loss is coming

can u send me circular notification regarding this..

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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16 March 2015 If it is settlement agreement it will amount to gift in such a situation the cost to the previous purchaser has to be considered for working out indexed cost of acquisition.

Querist : Anonymous

Querist : Anonymous (Querist)

16 March 2015 Seetharaman sir, i asked to client but he given me settlement agreement its not gift in settlement agreement settlement amount mention Rs. 10 lacs as pn 29 june 2007
what should i consider for purchase cost guidline value or settlement amount as per agreement

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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03 August 2025 Urgent question on **capital gains on sale of land acquired via settlement agreement** — what purchase cost to consider: guideline value or settlement amount?

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### Facts:

* Land was transferred via **settlement agreement** from father to son on **29 June 2007**.
* Settlement amount: Rs. 10,00,000 (10 lacs).
* Guideline value (stamp duty value) at time of transfer is **much higher** than Rs. 10 lacs.
* Now, the property is being sold, and question is: **Which cost to consider as purchase cost for capital gains calculation?**

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### Relevant Tax Provisions & Clarifications:

1. **Section 50C (Capital Gains on Sale of Immovable Property):**

* Applies only when property is sold to a buyer at a price lower than the **stamp duty (guideline) value**.
* For such sales, the **stamp duty value is considered deemed sale price** for capital gains.

2. **Cost of Acquisition for Capital Gains:**

* Usually, the cost is what the seller originally paid to acquire the property.
* But when property is received through **gift or settlement**, cost of acquisition is generally taken as the cost to the **previous owner** (donor/settlor).

3. **In case of Settlement:**

* If the property is transferred via settlement for **consideration (settlement amount)**, that amount is taken as cost.
* If no consideration or nominal consideration (gift), cost to previous owner is used.

4. **Guideline Value as Cost of Acquisition?**

* No, **guideline value cannot be used as cost of acquisition**; it only sets a floor on sale price under Section 50C.
* For purchase cost, the **settlement amount (10 lacs)** will be considered **if it is a bona fide consideration**.

5. **If sale price is less than guideline value, sale price is taken as guideline value for capital gains.**

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### What to do in your case?

* Since the property was acquired via settlement agreement for Rs. 10 lacs, **consider Rs. 10 lacs as cost of acquisition** (purchase price).
* **Guideline value is not cost of acquisition**, but if you sell property now at a price less than guideline value, for capital gains, **sale consideration is taken as guideline value** (Section 50C).
* Capital gains = Sale consideration (or guideline value) - Cost of acquisition (settlement amount of Rs 10 lacs, indexed).

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### Circulars/Notifications:

* CBDT Circular No. 715, dated 3 June 1993 clarifies cost of acquisition in gift/settlement cases.
* Section 50C explanation added in Finance Act 2001.
* No circular to consider guideline value as cost of acquisition; it’s only for sale consideration floor.

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### Summary:

| Parameter | What to Consider |
| ------------------------ | ---------------------------------------------------------- |
| Cost of acquisition | Settlement amount = Rs 10,00,000 |
| Sale consideration | Actual sale price or guideline value (whichever is higher) |
| Capital gain calculation | Sale consideration - Indexed cost of acquisition |

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