Dear Experts,

I have come across an interesting issue regarding the taxation of long-term capital gains on the transfer of land under the amended provisions applicable to immovable property.

Facts of the case:

  • Sale Consideration: ₹35,00,000
  • Actual Cost of Acquisition: ₹18,44,590
  • Indexed Cost of Acquisition: ₹46,86,256

Accordingly:

  • Without indexation:
    • LTCG = ₹16,55,410
    • Tax @ 12.5% = ₹2,06,927 (approx.)
  • With indexation:
    • Long-term Capital Loss = ₹11,86,256

While preparing the return, the ITR utility initially computes tax at 12.5% on the unindexed capital gain and thereafter grants relief by comparing it with the tax under the indexed method, effectively resulting in Nil tax. However, it does not recognize the indexed capital loss for the purpose of set-off or carry forward.

My query is:

The amended provisions give the assessee an option to pay tax either:

  1. @ 12.5% without indexation, or
  2. @ 20% after considering indexation (where applicable).

If the indexed computation results in a capital loss instead of a capital gain, why should such loss not be eligible for set-off or carry forward under sections governing capital losses?

I have not been able to locate any express statutory prohibition, CBDT Circular, or judicial precedent directly dealing with this issue.

I would appreciate the views of the learned members, along with any statutory references, CBDT clarifications, or judicial decisions that may throw light on this issue.

Thank you.