I have plot of land which was purchase some 15 years back. Its value then was 1L and its indexed value today is around 2.5L. The current market value is around 12.5 L. Over the years i have done a lot improvements on this land like i) leveling ii) add boundary wall iii) land-scaping etc. Unfortunately i do not have the bill that i have spent over the years on these improvements. Now in computing capital gains, I am told i can deduct/reduce the expenditure made on improvements. Can i get a official valuer to assess the improvements or can i take a notional value for improvements for the capital gains calculation. Even If i were able to find the bills would i be able to index them. Kindly advise to reduce profits due to LTCGT.?
You are entitled to claim indexed cost of improvement. Best evidence for this may be original expenditure bills and if you have disclosed the expenditure in the return of Income of relevant years, then copy of return of income disclosing the said
expenditure. In the absence of above records, you may obtain a
valuation report from registered valuer and claim the indexed value of amount estimated by the valuer. caution is to keep the claim to reasonable level.
In the present case in the absence of proofs , you can claim indexed cost of improvement. The following are the options and wholly depends on the Officer and your submissions if it gets selected for scrutiny:
1. If you can prove that you have disclosed the expenditure incurred in your previous IT Returns if you are filing Balance Sheet. Attach copy of the same.
2. If you can produce some bills from the contractor who has done work on the land.
3. Good remedy is if you can obtain a valuation certificate from income tax approved valuer for the same. Also keep ready the photo of the site for future purpose of showing that at the time of purchase the wall and other works were not there, if possible.
Also you need not submit the same at the time of filing tax returns. You can file the return taking , indexed cost of acquisition, indexed cost of improvement by taking into consideration the above options and file the returns.
Only at the time when the department asks then only you need to submit the same.
Cost of improvement will be allowed to be added to the cost of the land. Following points may be noted.
1. If you have incurred cost of improvements in different years, you need to apply different indexation for different costs depending on which year the expenditure was incurred.
2. The best way to show that you have incurred expenditure is to produce bills, if your case is taken out for scrutiny. The bills could be kaccha bills also, if they are genuine.
3. Apparently, you look to be an individual and not a businessman and hence you must not have prepared your Balance Sheet and shown the cost of improvement every year. Never mind, all that you need to show is that you had sufficient cash withdrawals which can justify the expenditure incurred, in those years on the basis of bank statements.
4. Getting valuation done is not an accepted method for showing the cost of improvement. It can only support your claim of cost of improvement in case there is any doubt about the expenditure incurred.
Now let’s come to other exemptions. Since the plot of land is long term capital asset, you will get following exemptions.
a. If this is an agricultural land, you can claim exemption under section 54B by investing capital gains in another agricultural land.
b. If you have only one house at present then you can invest the net consideration in another house property and claim the exemption under section 54F.
c. If you invest the capital gains in three year specified capital gains bonds, you will get full exemption under section 54EC.
It is important to note that, you need to satisfy the conditions mentioned in those specified sections and any non- fulfillment of those conditions will result in withdrawal or non- allowance of exemptions.
Dear Mr Sagar, Thank you for your very clear explanations. I happen to be a NRI and individual and I am having difficulty in getting the old bills so it there a way out of this. Also is there way to just consider present value of plot by a registered valuer and then calculate profit rather than old value and apply indexation. I have a few doubts on your responses b. Is this possible if i have a plot of land in my name can i construct on this land? is there any limit to extent (amount) of construction i can carry out c. For bonds i understand the ceiling is 50Lakhs d. can b and c be combined for exemptions ?
I had mentioned earlier that you need to show the proof of expenditure. If bills are not available, you can make a year-wise statement of expenditure, put this in to affidavit. In addition, if you had some photographs of land at the time f purchase you can prove that the improvement is made. Generally it is difficult to get the bills for such civil work, but the labourers who worked for you are ready to sign on vouchers with details of expenditure, this can help. If you had purchased the plot prior to 1st April 1981, you had a choice to substitute the value made by registered valuer as on that date. Acceptance of proof of expenditure incurred is a subjective matter and will depend on the officer scrutinizing your case.
You can construct a house property on plot of land owned by you within the prescribed time limit and satisfy other conditions mentioned in the section to claim the exemption.
Both b and c can be combined for exemption.
1.Yes you can construct a residential building if you have a plot of land. You need to construct and invest the capital gain you get.
2. Yes the ceiling of investment in Bonds is 50 Lakhs.
3. Yes can be combined.
It is better to take improvement and consider indexation.