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syed (ec)     27 January 2011

Capital gains for Ancestoral Property

Hello i have  set questions please help me:

1:i got a share from after selling my grandfather`s property, the property for an agriculture land so i want to ask is this property fall under capital gains. since i got a share and i am not the  purchaser do i still have to pay a capital gain for this.

2. this property was bought by  grandpa in 1971 and he passed away in 1980. and we sold this property in 2007.so how to calculate capital gain for this property because i am not the actual owner .

3: how can i get tax exemption on this gain. i want to invest  in buying  a land and build a house.

4. i got my share as DD and had deposited in my savings bank account how can i change it  to capital gain scheme account in a bank

Thank  you 

Regards 

Syed



Learning

 6 Replies

adv. rajeev ( rajoo ) (practicing advocate)     27 January 2011

No it is not applicable because as a share you hav e got it.

A V Vishal (Advocate)     27 January 2011

Where the capital asset becomes somebody else property on account of death , the treatment under I T Act is same as would have been applicable in case original owner , had he lived at the time of sale. Section 49(1) of the I T Act makes it amply clear:

 

49. (1)] Where the capital asset became the property of the assessee

 

(i) ….

(ii) under a gift or will;

(iii) (a) by succession, inheritance or devolution, or

the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.

 

 

Since the cost of the asset is the cost to the original owner, the indexation to that cost is also to be done from the year of purchase by original owner in case of mode of acquisition is as per section 49 of the I T Act. This has been made very clear in section 55 of the I T Act where the cost of acquisition has been defined. Subsection 2(b)(ii) of section 55 is for cases like yours (i.e acquisition as per sec. 49 ) . It says:

(ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee ;

You become the owner of the property by mode specified in section 49(1) ,hence as per section 55(2)(b)(ii) ,cost to your husband shall be cost of the property.Therefore , I have not even iota of doubt that the capital gain on sale of property , although taxed in your hand , has to be computed by indexation from year 1981 in your case as the asset was purchased in 1970 by your husband.

Important Beneficial Point

As can be seen from definition of cost of acquisition in case of mode of acquisition given in section 49(1) , the cost of acquisition means

cost of the capital asset to the previous owner

OR

fair market value of the asset on the 1st day of April, 1981

at the OPTION of the assessee.

 

So, you get in contact with a valuer registered with income tax department and obtain a valuation report from him for fair market value as on 1/4/1981. You can then compute indexation on that fair market value From year 1981 till the year of sale.

In your case , it is required to be seen if the  agriculture land  is out definition of Capital Asset . If that is so , in that case only the sale of agriculture land will not be charged capital gains tax. So what is the definition of capital gains is as under :

(iii)  agricultural land in India, not being land situate—

(a)  in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

(b)  in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;]

Section 54B provides that if one or his or her parents used the land for agriculture purpose , two years before the transfer of the agriculture land which is subject matter of capital gains , then if he or she purchases another agricultural land within two years from the date of transfer of land , then amount equivalent to investment in agricultural land shall be exempt.

In case   the sale of the land  results in long term capital gains on which you will have to pay tax , you can claim  exemption provided u/s section 54B ,54F and 54 EC which can be availed by you for reducing the tax or even exempting from payment of tax.

 

syed (ec)     27 January 2011

thank you Vishal SIr..

its a agriculture land but its a rural land.. its adminstration falls under taluk. so this means there is no capital gains for this land.. but since this money is there in my savings bank account how can i use this in buying a land for building a house for myself. how should i inform the IT department about this so that i can buy a land without any tax.

 

regards

Syed

A V Vishal (Advocate)     27 January 2011

If the last 2 conditions of my earlier post are satisfied there is no liability on account of the sale.

syed (ec)     27 January 2011

Vishal Sir , how can i buy a new house now what is follow up should i follow

CA IQTIDAR AHMED (propritor)     19 May 2012

HELP ME ,

SIR I HAVE A CLIENT WHO HAS TRASFERED HIS LAND TO SOME OTHER PERSON WHO WILL BUILD A COMMERCIAL COMPLEX ON SUCH LAND AND AS CONSIDERATION FOR TRASFER OF LAND HE WILL ALLOT SOME SHOP TO MY CLIENT IN SUCH COMPLEX.PRESENTLY MY CLIENT RECEIVED RS 300000/- IN ADVANCE .KINDLY TELL ME TAX IMPLICATION


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