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Capital gain calculation on sale of floor of property.

14 September 2017

Suppose a land was purchased in the year 2001 for rupees 2 lacs. Ground floor was constructed in the year 2002 for rupees 3 lacs. First floor was constructed in the year 2015 for rupees 4 lacs. Second floor was constructed in the year 2016 for rupees 5 lacs. Only second floor is sold in the year April 2017 for rupees 13 lacs. How would you calculate capital gain.

This is a complex situation faced by a client. I have searched a lot but no Case law found to guide me in this context.

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7 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 16 September 2017

The sale value is to be bifurcated as the value of land part (FSI transferred) and constructed part. Lands sale value will be subjected to LTCG and the construction part to STCG.

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Bhupesh Gangwani (14 Points)
Replied 16 September 2017

As far as Land is concerned there is no doubt that it will be subject to ltcg. With regard to building there is an alternate view that whole building should be treated as one single property and subsequent construction of floors be treated as cost of improvement. The cost of construction of building should be subject to indexation and the cost of second floor will be one third of total cost of building.

Another ambiguity in this regard is that the registration deed for sale of 2nd floor does not mention sale of land. So how to determine the value of land from the total consideration of rupees 13 lacs.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 16 September 2017

1. I have already clarified that as 'Floor Space index' FSI consumed on second floor out of total FSI available over plot.

2. If bifurcation is not justified, either as per guidance value or agreement value, AO may finallize the ratio as per his discretion.

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Bhupesh Gangwani (14 Points)
Replied 16 September 2017

Thank you for your guidance sir. If you can please comment on the alternative view of considering the entire house property as 1 asset instead of treating 2nd floor as a separate asset as recommended by you.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 16 September 2017

As there was sell of a part of asset, this is best suitable method of assessment. Otherwise for all other aspect the property remains single or undivided.