Income tax -fair market value of property as on 1.4.2001

Querist : Anonymous (Querist) 03 September 2024 This query is : Resolved
1. Mr.X constructed an individual house with 1000 sft in 1989 on one ground Land in Chennai .
2. He registered a Settlement Deed of the Property with the House to his Son Mr.Y and Daughter Ms. Z with 50% joint ownership through a Settlement Deed in 2016.
3. In the year June 2023 both Mr.Y and Ms.Z sold the property for 70Lacs.
4. The Fair Market Value of the Property is to be arrived at as on 1.4.2001 to work the Long term capital gain.
Query.
For arriving the Fair Market Value,
A) Can the Land value and Building value to be calculated separately and added to get the Total value of the Property. If so, What should be the basis for the Building value.
B) Can a composite value ( like that of a flat) be adopted for individual house
C) Is the indexation allowed on the Total Fair Market Value of the Land and Building as on 1.4.2001.

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Quick Summary

This discussion addresses how to determine the fair market value (FMV) of a property as of April 1, 2001, for calculating long-term capital gains tax. It explores whether land and building values can be calculated separately or if a composite value is acceptable. The query also questions the eligibility for indexation on the total FMV as of that date. While income tax laws don't provide specific guidelines for FMV calculation, it's crucial for establishing the cost of acquisition when the property was owned before April 1, 2001. Consulting a Chartered Accountant for precise valuation and tax filing is recommended.

T. Kalaiselvan, Advocate (Expert) 03 September 2024
1. Capital gain broadly calculated as Capital gain = ( full value of consideration received on transfer) - ( cost of acquisition of capital asset + cost of improvement of capital asset + expenditure incurred in connection with transfer of capital asset).
2. The profit is generally arrived at by deducting the cost of acquisition and cost of improvement, from the sale consideration.
3. For properties that are acquired by you prior to April 1, 2001, you have the option to take the fair market value of the property as of April 1, 2001, in place of the cost of acquisition. So, the concept of fair market value is important for finding out the cost of acquisition, for capital gains purposes.
According to Section 2(22B) of the Income Tax Act, the capital gains price for a relevant period is the fair market value.
The income tax laws do not provide any guidelines on how the fair market value of a property has to be arrived at. However, there are certain ways through which you can make an estimation of the fair market value of the property which would, generally, be acceptable to the Income-Tax Department.

SIVARAMAPRASAD KAPPAGANTU (Expert) 04 September 2024
Please approach a Chartered Accountant or Income Tax Consultant with full details and copies of documents for clarification and handling filingnig of relevant ITR.

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