1. On 24.11.2014, Mother purchased an incomplete and unfinished house (duly mentioned in the registeration deed and evaluator's report) on a piece of land for Rs 27,87,666, the cost of land and under constructed house being 2,67,766 and 25,20,000. 2.Mother got the house completed and made suitable improvement with her money in next 3 months of the purchase. However she did not kept the receipts and bills of the same. 3. On 24.3.2018 mother transferred the propery to her son through family settlement deed. The cost of land was valued for 7,05,000 and the cost of completed house was valued by the architect cum evaluator as 41,30,524 and actual cost of building after depriciation was also same. The registeration fee was paid accordingly. 4. Wether the diffence of Rs 16,10,524 between the origional valued cost of house at the time of mother 's purchase i.e. 25,20,000 and valued cost at the time of transfer to the son i.e. 41,30,524 can be treated as cost on improvent for the purpose of calculating long term capital gains, if the son sells this property? Dr S. Verma Email: [deleted] .
Hi,
Hope you are doing well !
The difference will be treated as cost of improvement only when it is actually incurred , if the son sell this property. So, the COI would be only Rs. 25,20,000/- and COA would be Rs. 2,67,766/-
If you need any further assistance in capital gain working, please let us know.
Thanks & Regards,
Payal Chhajed
Hi
Firstly, this would be a long term capital gain.
Since it's a case of gift, costs for your mother shall be considered and the holding period shall start from 2014.
For calculation of indexed COA and indexed Cost of improvement, you need to use index of the year 14-15 with the relevant costs of that year.
However, if you're considering costs as per valuation of 2018, you need to index the costs considering the index of 2018 only.
Dear Sir,
There would always be a difference between cost and valuation report which can not be treated as COI. It is a case of gift and in such cases, cost to the previous owner would be deemed as cost in the hands of donee. Had the transfer been made before 01.04.2001 or purchased before 01.04.2001 then FMV would be taken as on 01.04.2001. Purchase after 2001 would be taken on cost and not FMV. Cost would be 27,87,666.
Thanks
Infact the mother had purchased this incomplete unfinished house from a builder cum cotractor. She spent 16 lacs on completingand improving the house through this contractor under her supervision by paying the agreed amount in cash/cheque for different types of works on different dates on agreed terms. The cost icluded both material and labour. The builder cum contractor issued receipts on plain paper for different works indicating the amount and type of work. The receipts vary in amount from 3 lacs to 8.5 lacs. Will these receipts help in satisfying the tax officials that the amount has actually been utilised for improvement and completion of house so that this amount is used for calculating the indexed cost of improvement for calculating long term capital gain. Dr S Verma satyashyam@gmail. com
Hi,
Yes, these receipts will help.
The amount actually spent on improvement will be treated as cost of improvement , if you have a appropriate proof of expenditure done on house for improvement.
Thanks & Regards,
Payal Chhajed
Yes, you can claim them as COI and if the withdrawals from bank can be matched with the expenses incurred on material and labour that would be more helpful but the matter is still subject to litigation. AO has the power to disallow all or some of the above expenses.
If the receipts contain the information relating to your of work done, name and signature of builder/contractor, then it would suffice the requirement.
Hi,
This is a case where the mother has gifted the property to her son. So in this case the cost of acquisition will be deemed to be the same as the cost of the previous owner. in your case the cost will be 27,87,666 and you will be liable to pay long term capital gains tax on selling the property.
If there is sufficient proof that the expenses have been incurred and they can be proved by way of bank statements, it should suffice. However, this is not fool proof and may be subject to litigations, in absence of information that the AO may want to see
Hi Dr. Verma,
The difference between the purchase value and value computed at the time of settlement deed cannot be wholly attributable to the improvement cost because some part of the cost is attributable to the inflation as well.
However, in the absence of proper bill, bills given by the builder on plain paper can also be shown as a proof along with the cheques given the favour of builder.
