Long term capital gains tax
sanjay
(Querist) 17 March 2012
This query is : Resolved
I had bought a shop in 1990 for 2.65 lakhs. In the due course i had to pay a penalty of 8.65 lakhs since the shop was not started in time. Now i am selling it for 20 lakhs. what will be the LTCG tax applicable and what will be the cost of shop considered in this case. Can i include the lease taxes and penalty as cost for calculating LTCG.
Raj Kumar Makkad
(Expert) 19 March 2012
Cost shall consist even penalty paid during this period and after calculating the details, you need not to pay any capital tax thereon as you have no LTCG.
Anirudh
(Expert) 19 March 2012
Dear Mr. Makkad,
Have you got any authority (case law) to support your views?
C. P. CHUGH
(Expert) 19 March 2012
Dear,
Your querry is not clear at all. What do you that you have to pay penalty (and to whom) becuse shop was not started in time. Was there any stipulation in allottment letter that you would commence business in a particular period otherwise the same shall be either resumed or you may get it compounded after payment of certain dues OR you were required to construct the shop within a stipulated period. All this is required to answer correctly.
Assuming you were required to commence business activities in stipulted time frame, which you failed and have to pay penalty or compounding fee, this could be treated as improvement of the title becuase without this payment the title remains defective and not sale-able.
If you had paid penalty for disobeying any law in force, then the same cannot be treated as cost and you shall be deprived of the benefit of indexation for this amount. Only original cost shall be indexted and taxed accordingly.
Anirudh
(Expert) 21 March 2012
Mr. Makkad has understood the query and also answered, but is yet to come out with any case law to support his views.
Again Mr. Chugh also has to clarify whether he has any authority to support his views when he says: "Assuming you were required to commence business activities in stipulted time frame, which you failed and have to pay penalty or compounding fee, this could be treated as improvement of the title becuase without this payment the title remains defective and not sale-able."
For the benefit of Mr. Prabhakar Singh:
For the purpose of calculating the Long Capital Gain - one has to deduct from the sale price the original cost of acquisition of the asset and the cost of improvement of the asset. For this purpose the original cost of acquisition and cost of improvement has to be indexed to adjust for the inflation from the time of purchase to the time of sale.
It is in this context the querist wants to know, whether the 'penalty' of Rs. 8 lakhs and odd paid by him in connection with the shop (not starting the commencement within stipulated time) can be taken into account as 'cost of acquisition' or he has to exclude the 'penalty' from the calculation. If he is entitled to take into consideration the amount of 'penalty' paid, then the indexed cost of acquisition will go up and consequently the Long Term Capital Gain will come done. If he is not permitted to take that into account, then his cost of acquisition of the asset will go down to that extent, and consequently the quantum of Long Term Capital Gain will go up.
Therefore, the querist wants to get clarification on this particular point.
