Tax calculation

Sir, 
My mother got a land through gift deed on 20.09.1985 and the value of the land as per deed was  Rs. 3,500/- .

In the financial year 2015-16.She has sold a land for Rs 4,50,000/- and received the same amount by cheque. 

Now I noticed that in the sell deed market value of the land is Rs. 9,18,000/-.

Please tell me, on which amount Long Term Capital Gain Tax will be calculated? On Rs 4,50,000/- or on Rs. 9,18,000/-.

And how much tax she have to pay as long term Capital Gain Tax.
Asked 1 year ago in Capital Gains Tax from Suri, West Bengal
The market value  of Rs. 9,18,000/- as per sale deed will be considered as deemed sale consideration and capital gain will be worked out accordingly.

The cost of land acquired trough gift deed may be Rs. 3,500/- but the cost to the donor will have to be considered as the cost of acquisition.  As the cost at even Rs. 3,500/- is low, the cost to the previous owner should be still low. If the asset was acquired prior to 1981, the market value as on 1/4/1981 will have to be adopted as the cost. Even in 1985, the cost inflation index was only  133. Hence, your indexed cost of acquisition may be around Rs. 30,000/- only for the financial year 2015-16 (the index for FY 2015-16 is yet to be announced). So your long term capital gains will be around Rs. 8.5 Lakhs.

However, if you invest the sale proceeds in a residential house, you may claim exemption u/s 54F, subject to fulfillment of conditions specified therein. It is sufficient if you invest your actual sale proceeds and not the deemed sale consideration.
B Vijaya Kumar
CA, Hyderabad
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Your Mother need to take Market Value of the land i.e. 9,18,000/- as sale proceeds and calculate tax accordingly.

in case of gift the value to the previous owner will be taken as cost. If the property has been purchased before 1-4-1981 then the value as on 01-04-1981 will be taken as cost of acquisition .

If I take the value as on 01-04-1981  as Rs.3500/- the the indexed cost of acquisition comes to 37905. Reduce this from 918000 . Thus Rs.880095 is Long term capital gain. If you wish to invest in purchase of any property then you can invest the actual sale value of land to get exemption.
Shyam Sunder Modani
CA, Hyderabad
955 Answers
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Thanks for your compliments.

Even though the market value is Rs. 9,18,000/-, your actual sale consideration was only Rs. 4,50,000/-. Normally the actual sale consideration is the amount that is received and hence it should have been considered for the purpose of computation of capital gains. However, the actual sale value is disregarded and deemed sale consideration is considered for the purpose of calculation of capital gains u/s 50C of the Income Tax Act. The scope of this section is limited only for the purpose of arriving at capital gains.

For availing exemptions, you cannot invest what is not received by you. Hence, the exemption u/s 54F is based upon actual sale consideration. Hence, if you invest your actual sale consideration in acquisition of a new residential house, you can claim exemption of entire capital gains u/s 54F. 

However, in the case of exemption u/s 54EC, the long term capital gains will have to be invested and not the sale consideration. As the long term capital gains in your case is much more than the actual sale consideration, your exemption will be restricted to the amount of capital gains that is invested,i.e. Rs 4,50,000/- in your case. The balance long term capital gains will be taxable, if you are claiming exemption u/s 54EC    
B Vijaya Kumar
CA, Hyderabad
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If the market value of the property for stamp duty purpose is Rs 9,18,000/- then for the purpose of computing capital gains tax Rs 9,18,000/- will be considered and not Rs 4,50,000/-
Vijay N. Kale
CA, Hyderabad
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only 2-3 percent of I T Returns are selected for scrutiny every year. Also the criterion for selection of returns is mostly based on principle fixed by the CBDT and assessing officer has no discretion in selection .  Therefore you need not be excessively concerned about notice from I T department. You focus yourself in investment to save capital gains tax and payment of balance amount of gain.
Vijay N. Kale
CA, Hyderabad
248 Answers
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The index for the financial year 2015-16 is not yet notified. Hence, the exact amount of long term capital gain cannot be computed at this stage. However, assuming that the indexed cost of acquisition is about Rs. 30,000/-, your long term capital gains will be Rs. 8,88,000/- (Rs. 9,18,000/- less Rs. 30,000). As you are investing Rs. 4,50,000/-, the exemption u/s 54E will be Rs. 3.52 Lakhs and the balance amount of Rs. 5.36 Lakhs will be the long term capital gains on which tax needs to be paid. The tax on Rs. 5.36 Lakhs works out to about Rs. 48,000/-. I suggest that you may pay Rs. 50,000/- as your tax. There may be marginal difference between the actual tax liability and the advance tax you will be paying now. If there is any additional tax liability, it may be paid as self assessment tax on or before the due date for filing of your IT return, which is 31st July 2016. If there is excess tax payment, you will get refund. The margin of error will be around Rs. 2 to 5 thousands only.
B Vijaya Kumar
CA, Hyderabad
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Sir

Can you please send the details one by one to our mail ID modani005@gmail.com so that we can send you calculations as your questions as very confusing.

Shyam Sunder Modani
CA, Hyderabad
955 Answers
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I am happy to know that you could benefit from this forum. Still I suggest to file your return with the help of a CA to ensure that you file proper return of income.
B Vijaya Kumar
CA, Hyderabad
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Thanx for your appreciation
Shyam Sunder Modani
CA, Hyderabad
955 Answers
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Yes you can claim exemption u/s 54F also, provided you invest the consideration in purchase or construction of a house.
Vijay N. Kale
CA, Hyderabad
248 Answers
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If your mother is having no other income than long term capital gains, which was determined at Rs 4,68,000/- then there is no tax upto basic exemption level I e Rs 2,50,000/- in case of non- senior citizen and Rs 3,00,000/- in case of senior citizen. Therefore taxable long term capital gains in this case would be Rs 4,68,000-Rs 2,50,0000 which is equal to Rs 2,18,000 and tax would be leviable at the rate of 20.6% of such gain.
Vijay N. Kale
CA, Hyderabad
248 Answers
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