Capital gain computation

Mr.Siva,

The sale proceeds of the whole property will be considered only as aong term capital gains under section 45. It is only the composite component of the property sold, which is identified as the capital asset, that is material in deciding the resultant gain. for classification as between shortr and long term. There is no matter that the 2nd floor was just coinstructed a year before the sale. You are entitled to adopt the indexed cost at different figures i.e. for the land, cost of construction of the ground plus I floor and then the II floor, based on the year of acquisition/constrruction.. The gains would not be seggregated as between short and long term, especially when the moss of the property is one. There are a number of  decided cases on this. Since, however, it is an acknowledged mode of understanding for any tax administraror, there could be no difficulty in canvassisng this valid view, which has to be accepted..

The answer given is correct.  All additions to the property will qualify as "improvement" for which indexation can be claimed.

However, it is possible under certain circumstances that the land and superstructure can be regarded as seperate which is also judicially approved, though yours is not one such instance.

Entire gain will be Long term in nature.

When calculating, indexation should be done for the cost and the improvement i.e second floor taking the respective index. 

construction of floors will be treated as cost of improvement and entire gain will be Long term Capital Gain

ltcg..substance over form.