Accounting in case of sale of land

SIR,

MY QUERY IS:-

A PRIVATE LIMITED COMPANY IS HAVING A LAND (MORE THAN 5 YEARS, LONG TERM ASSET) IN FIXED ASSETS LAST YEAR..

THIS YEAR, IT DEVIDED LAND IN 70 (UNEQUAL SIZES) PLOTS AND IT EXPENSED ON LAND (LIKE REGISTRY EXPENSES, ROAD CONSTRUCTION, BOUNDARY CONSTRUCTION ETC.).. AND SOLD AROUND 70% OF LAND (IN PLOTS) TO PUBLIC IN VARIOUS TIMES..

COST OF LAND WAS VERY LOW AND SELLING 70% PART WAS VERY HIGH... AND COMPANY STILL HOLDING SOME OF THE PLOTS 30% OF LAND WITH IT..

WHAT WILL BE THE ACCOUNTING TREATEMENT, VARIUS OPTIONS FOR MINIMIZING TAXATION (LIKE CONVERSION IN SIT), AND WHAT WILL BE VALUATION OF THE 30% LAND WITH COMPANY AND TAX COMPUTATION OF LAND SOLD... WHAT BENEFITS/EXEMPTIONS INCOME TAX ACT PROVIDES TO SAVE TAXATION ON SUCH PROFITS ARISING DUE TO SALE OF LAND...

PLEASE CLARIFY WITH THE BEST ACCOUNTING TREATEMENT AND TAX SAVINGS

REGARDS

If land in converted into stock in trade i.e., land into plots, the expenses pertians to converion, registraion and development charges etc should be debited to land first and then arrive the cost of each plots = (Total cost / total no of plots) to arrive the cost of plots (cost of inventory)

On selling of 70% of plots, the profit as business income and can be recogniesed as actual possession to buyers. Remaining 30% of plots shall be inventory or stock in trade for particular period.

Regarding Tax planning:

Whatever cost incurred with regard to covertion, registraion and development charges are elgible for deduction as cost of improvement of development (Development expns)

The guidence value i.e value determined by sub-registrer of Revenuw dept shll be adopt as sales consideration. U should have seperate agreements for the actual sale price and agreement for guidence value to mitigate the tax laibility as per your compnay policy.

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Harshita

CA. Subhash Dangi

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