Sir,
One of my client has received a sum of ₹35,00,000 towards Extinguishment of Rights and he invests this amount in a new business. What is the journal entry to be passed?
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Extinguishment of Rights
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Quick Summary
Simple!
Rights and options?
No sir. Extinguishment of Rights as in immovable property.
Extinguishment of rights..
Rs 35 lakh received for extinguishment of rights:
• Receipts for extinguishment of rights in a capital asset (e.g. tenancy rights, development rights, rights under an agreement to purchase property) are capital gains (Sec 2(47) includes extinguishment of rights). Cost: if self-generated (no purchase price), nil (Sec 55(2)(a) for tenancy rights, etc.), or the amount paid for the right.
• Holding period from acquisition of the right.
• Exemptions: 54F (if invested in a residential house, for a non-house asset). 54EC applies to land or building; whether rights in land qualify is debated.
• If the receipt is for giving up a right to sue (compensation not linked to an asset), it may be a capital receipt not taxable. Facts matter.
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