Capital Gain Tax
sachin
(Querist) 25 May 2010
This query is : Resolved
We have an lease land industrial property of UPSIC, which was alloted to my company (Pvt. LTD) in 1984 for 99yr lease.We have constructd the building.
now we want to despose that land & building, as it not free hold land we ( company) con't do the direct registry as in normal case, campany has to surrender the land to UPSIDC with NOC for tranfer to buyer legaly company will get Value of the building. Company has claimed depresiation on Building.
Is the capital gain is applicable on lease land as there is no direct sale? will it be applicable on Building?
Kumar Thadhani
(Expert) 26 May 2010
During the time of allotment lease land industrial property of UPSIC ,you must have gone into agreement for purchase of lease land from ,and must paid their price say X amount for the same,and that now you had constricted building on that land then that proprty had apppreciated in value even though you will surrendering the abovesaid property to UPSIC, they will paying you market price for the same and entering into agreement for land & Building, and wil much higher than the cost price.Hence it is capital gains.
Vineet
(Expert) 26 May 2010
The building constructed by your company on leased land forms part of depreciable assets and hence the consideration for building shall be treated as for any other depreciable asset i.e. it will be reduced from the wdv of the respective block of asset and surplus if any shall be taxed as short term capital gain.
As far as leasehold land is concerned, you are transferring/ surrendering the lease rights of the land and therefore consideration received for the same shall be trated as capital receipt and the difference between consideration and original lease charges paid by you shall be taxed as long term capital gain.
You cannot detatch building from the land and neither the consideration received by you can be tretaed as wholly for the building as you are surrendering lease rights of land also which are more valuable. Hence it is suggested that you bifurcate the consideration in the agreement itself with bias towards land value as the tax rate for LTCG is lower and you can seek exemption also by investing the consideration in certain specified assets.
