Calculation of Capital Gains for sale of property

Tax queries 2174 views 3 replies

JamesBond

Others

29 Points Posted on 25 October 2010

Consider the scenario

A purchaser and a layout developer enter into an "agreement to sell" for the purpose of transfer of a site in the layout for a specified sale consideration. For example let it it be Rs 10,00,000/- (ten lakhs only)

The purchaser agrees to pay Rs Ten laks for purchasing the site. The amount will be paid after taking a loan from the financial institution.

The guidance value as per government norms is Rs 5,00,000 (five lakhs only) and the conveyance deed (sale deed) is done for the amount of five lakh only and the moneys are transferred before the sale deed is executed.

After five years of the sale deed execution, the purchasers plans to sell the site in the layout.

For the purpose of capital gains, what will be considered as cost of acquisition. - Rs 5 lakhs or Rs 10 lakhs (assuming the sale deed registration has already been carried out)

Second scenario - if the sale deed is yet to be executed, is it advisable to register the property at the amount agreed in the agreement to sell (Rs 10 laks only) or at the government prescribed guidance value

Thanks

Replies (3)

shushantsinghal

BCOM(HONS) C.A

283 Points Posted on 25 October 2010

according to sec 50C of income tax act,1961 in ur case cost of acquistion shall be Rs 10,00,000/- as this sale proceeds > stamp duty valuation....

JamesBond

Others

29 Points Posted on 25 October 2010

Originally posted by : shushantsinghal
	according to sec 50C of income tax act,1961 in ur case cost of acquistion shall be Rs 10,00,000/- as this sale proceeds > stamp duty valuation....

Just to clarify, I assume then that the Sale consideration of Rs 10 lakhs (as in agreement to sell) is considered as cost of acquistion and not the figure of Rs 5 lakhs as mentioned in the conveyance deed (as per guidance value). This would also imply that the agreement to sell can be considered as a basis for calculation of the cost of acquisition

CA ADY

Chartered Accountant

43 Points Posted on 26 October 2010

Cost of acquisition should be the value mentioned in the conveyance deed, not as per any agreement or on any assumptions. If you are on a audit of a company or an individual, how would u vouch for the accuracy of the value of the asset mentioned in the balance sheet?? As simple as that. Even when any information is called by the assessing officer, he will verify the cost of acquisition with the regitered value not as per any agreement.