My 300 sq yards property was constructed in 1987. In 2019 I am entering into a collaboration agreement with a builder to demolish and reconstruct the property into 4-floors plus basement. The builder shall retain one floor plus basement (hereafter referred to as Portion-A) and I shall retain three Floors (hereafter referred to as Portion-B) under my ownership. Which of the following is the correct way to compute my capital gains tax: (1) Sale Consideration = Stamp Duty Valuation of Portion-A + Cash received Cost of acquisition = Indexed Cost of the property in 2019 (2) Sale Consideration = Stamp Duty Valuation of Portion-B + Cash received Cost of acquisition = Indexed Cost of the property in 2019
So first of all in this case the capital gain will be will be paid in the year in which the builder receives the certificate of completion for his project.
Secondly as per section 45(5A) capital gain would be the same value as mentioned by you in option B.
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Thank you
Option 2
Hi
Option 2 is correct.
For COA, FMV of the property as on 01.04.01 shall be needed. Such value shall be indexed.
Thanks for the answers. But if I take this discussion one step further: as part of the collaboration agreement, I have sold my property to the builder. He constructs independent floors and I have purchased 3-floors from the newly constructed property. My understanding is that as an individual, I am allowed to re-invest capital gains in 2 residential properties. So from LTCG computation perspective I should be able to offset the stamp duty value of 2-floors of Portion-B, effectively making my sale consideration computation being the stamp value of only one floor of Portion-B + cash. Is this line of argument valid?
If you are giving away your residential property for reconstruction then you can obviously claim the new 2 floors you are getting as exemption u/s 54 of the income tax act.
Thank you
Yes. Exemption under section 54 shall be available. If the proposed budget is passed and becomes a law, exemption shall be available for 2 floors.
Dear Sir,
Hope you are doing well !!
Option 2 is correct way to compute your capital gains tax.
Yes, your understanding is correct.
Capital gains exemption under Section 54:
As per budget 2019 ,assessees can get an exemption by investing long term capital gains from the sale of house property in up to two house properties against the earlier provision of one house property with same conditions. However, the capital gains on the sale of house property must not exceed Rs 2 crores.