what is capital gain implications?
This query is : Resolved
29 June 2017
Suppose party X sold non agriculture land to Y, party Y has divided this land in to small plot and Y sold this land to party Z, party Z has build 3 floor duplex. In the above all this transaction actual sale deed was not created. now party Z sold this 1 floor to party A. & sale deed created between party X and party A.
Now my question is that what is tax implications on party X.
29 June 2017
To comment on the tax implication, when and from whom X got the consideration has to be known.
29 June 2017
X got the consideration from party Y in the year 2008. Party Y got the consideration from party Z in the year 2011. And party Z got the consideration from party A in 2011.
03 August 2025
Thanks for sharing the detailed scenario. Let’s break this down step by step to understand the capital gain tax implications — particularly for Party X, based on the chain of transactions you've described.
🔷 Basic Structure of Transaction:
2008 – Party X sells non-agricultural land to Y (no registered sale deed).
2011 – Party Y sells land (split into plots) to Z (again, no registered deed).
Z constructs a 3-floor duplex and in 2013 sells 1 floor to Party A.
The only registered sale deed is made between X and A, at the time Z sells to A.
🔷 Key Issue:
Since only the final sale deed is between X and A, legally X still appears as the owner of the land in government records. That creates complications.
🔶 Now, What Are the Tax (Capital Gain) Implications for Party X?
Let’s go step-by-step:
1. Capital Gain Tax arises when you "transfer" a capital asset
Under Income Tax Act (Section 45), capital gains are taxed in the year of "transfer", not necessarily when the deed is registered.
👉 So, even if no deed was registered in 2008, if Party X received consideration and gave possession to Y, it's considered a transfer under Section 2(47) of the Income Tax Act.
✅ Therefore, Party X is liable to pay Capital Gains Tax in FY 2008-09.
2. Type of Capital Gain?
Since it's non-agricultural land, it is a capital asset.
If Party X held the land for more than 2 years before selling to Y in 2008:
It’s a Long-Term Capital Gain (LTCG).
Eligible for indexation benefits.
Taxed at 20% + cess.
3. What About Sale Deed with Party A (Final Buyer)?
This deed is only formal/legal paperwork done in 2013, likely to clear title issues.
But Party X didn’t receive any money from Party A, so:
No fresh tax liability arises for X in 2013.
But if this transaction is not reported properly, tax authorities may think X sold the property in 2013, creating confusion or double taxation.
👉 X should maintain evidence that:
Actual sale happened in 2008 (e.g. receipt, possession letter).
He had no financial involvement in the 2013 transaction.
🔶 Summary of Tax Implications for Party X:
Item Details
When Capital Gain arises In 2008, when X sold land to Y & gave possession.
Type of Gain Long-Term Capital Gain, if held for >2 years.
Tax Rate 20% + surcharge/cess (with indexation benefit).
2013 Registered Sale Deed No tax on X, if no new consideration received.
Risk If not reported properly, I-T Dept may question later.
🔷 Basic Structure of Transaction:
2008 – Party X sells non-agricultural land to Y (no registered sale deed).
2011 – Party Y sells land (split into plots) to Z (again, no registered deed).
Z constructs a 3-floor duplex and in 2013 sells 1 floor to Party A.
The only registered sale deed is made between X and A, at the time Z sells to A.
🔷 Key Issue:
Since only the final sale deed is between X and A, legally X still appears as the owner of the land in government records. That creates complications.
🔶 Now, What Are the Tax (Capital Gain) Implications for Party X?
Let’s go step-by-step:
1. Capital Gain Tax arises when you "transfer" a capital asset
Under Income Tax Act (Section 45), capital gains are taxed in the year of "transfer", not necessarily when the deed is registered.
👉 So, even if no deed was registered in 2008, if Party X received consideration and gave possession to Y, it's considered a transfer under Section 2(47) of the Income Tax Act.
✅ Therefore, Party X is liable to pay Capital Gains Tax in FY 2008-09.
2. Type of Capital Gain?
Since it's non-agricultural land, it is a capital asset.
If Party X held the land for more than 2 years before selling to Y in 2008:
It’s a Long-Term Capital Gain (LTCG).
Eligible for indexation benefits.
Taxed at 20% + cess.
3. What About Sale Deed with Party A (Final Buyer)?
This deed is only formal/legal paperwork done in 2013, likely to clear title issues.
But Party X didn’t receive any money from Party A, so:
No fresh tax liability arises for X in 2013.
But if this transaction is not reported properly, tax authorities may think X sold the property in 2013, creating confusion or double taxation.
👉 X should maintain evidence that:
Actual sale happened in 2008 (e.g. receipt, possession letter).
He had no financial involvement in the 2013 transaction.
🔶 Summary of Tax Implications for Party X:
Item Details
When Capital Gain arises In 2008, when X sold land to Y & gave possession.
Type of Gain Long-Term Capital Gain, if held for >2 years.
Tax Rate 20% + surcharge/cess (with indexation benefit).
2013 Registered Sale Deed No tax on X, if no new consideration received.
Risk If not reported properly, I-T Dept may question later.
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