Hello Sir/Mam My Late father bought the land in 1986, my mother, sister, and I are equal co-owners, we are selling the land to a known person for less than the current guidance value and we learned the Capital gain tax will be calculated considering the sale amount as current circle/guidance value even though we are selling it less than guidance value. since the property was bought in 1986 for indexation purposes I need the 2001 circle rate but in the sub-registrar office there is no notification for estimation of property value for 2001, I asked why they said there was no notification published that year but there is notification published in the year 1999 and 2002 now I have a few questions 1) can I take the average of 1999 and 2002 circle rates for indexation purposes? will the income tax dept accept this average as FMV of 2001? 2) for example assume 10 lakhs is today's circle rate and sale consideration is 5 lakhs and the property was bought in 1986 for 10000 rupees, taxable capital gain after indexation is 7 lakh. now I want to know can i add 2 lakhs from my savings to the 5 lakhs I got from selling the property so that i can put full taxable capital gains in bonds to avoid capital gain tax?
1) circle rate as on 01.04.2001. FMV as on 01.04.2001 can not exceed circle rate. You may contact government approved valuer for exact circle rate as on 01.04.2001.
2) Full value of consideration would be Rs.10 lacs and capital gain would be Rs.9,68,300. ICOA would be Rs.31,700 (10000/100*317)
3) To save taxes, you have to invest capital gain into bonds within 6 months from the date of transfer of land.
1) I think the notification in 2002 was to revise the rates notified in 1999. If that is so, the notification issued in 1999 holds good for determining the fair market value of the property as on 1st April 2001 and there is no need to take average of the rates issued in 1999 and 2002.
2) The fair market value as on 1st April 2001 has to be determined and not the value in 1986 The indexed cost of acquisition of the property, if sold in the current financial year, will be 3.17 times the fair market value as on 1st April 2001.
As the circle rate is Rs 10 lakhs but the actual sale consideration is Rs 5 Lakhs, the sale consideration will be deemed to be Rs. 10 Lakhs only. .
The difference between the deemed sale consideration, i.e.,Rs 10 L and the indexed cost of acquisition will be the long term capital gains.
3) It is sufficient to invest only the capital gains amount in the capital gains bonds. Its not necessary to invest entire sale proceeds. Further, the long term capital gains as determined by taking the deemed sale consideration is less than the sale price, he can invest that amount only. In the example given by you, the deemed sale consideration is Rs 10 Lakhs, while the actual sale consideration is only Rs 5 Lakhs. However, if the long term capital gains is, say, Rs 7 lakhs, there is no need to invest Rs 7 laksh in capital gains bonds. Its sufficient if the investment is made only to the extent of actual sale consideration, i.e., Rs 5 Lakhs, as you cannot invest what you have not received.
Sir/Mam follow up question 1) since my mother, sister, and I are equal co-owners of the property after my father's demise, is the capital gain tax applicable to all three, or does only one have to pay tax? 2) how to adjust basic income limit with LTCGT, please consider the following scenario for example, I'm 35 yrs old male and has total taxable income from salary, interest on FD, and other sources are 3,50,000rs and ( total capital gain from selling the property is 24,00,00rs and if my mother, sister, and I are equal co-owners and if I divide capital gain of 24,00,00rs among 3, each will get 8,00,000rs)..... now to how to adjust my income of 3,50,000 with my share of capital gain of 8,00,000 and what will my total tax liability be? 3) since sale consideration is less than the current guidance value can't I add the difference amount from my savings so that my LTCGT will be zero?
Hi
1. You should adopt Circle rate for 1999. Since no notification was issued for 2001, it will be presumed that the earlier rate would continue.
2. Yes, you can purchase 54ec bonds from any other funds. Capital gain exemption would be available.
1. It will be taxable equally for all three of you.
2. Taxes would be calculated for each one of you separately. Your respective share of capital gain will be added to your income.
3. LTCG will be taxable. However, reinvestment for exemption purpose can be done from own funds.
1) You, your mother and sister are legal heirs and share in property would be equal (i.e. 1/3). Unless any one of you relinquish share in favour of other legal heir, capital gain would be calculated separately in the hands of each legal heir. Obtain legal heir certificate from the local authority and probate order from the court.
2) basic exemption limit is Rs.2,50,000. If your mother is a senior citizen, basic exemption limit is Rs.3,00,000. If exemption limit does not set off fully with income other than LTCG then shortfall will be adjusted against LTCG and remaining LTCG is chargeable to tax at special rate of 20.8%.
3) You can adopt actual sales consideration of Rs.5 lacs in lieu of guidance value of Rs. 10 lacs but that should be supported by a genuine and convincing valuation report. Valuation report should clearly mention why market value of your land is less than the minimum guidance value. If the report would not be convincing then AO will calculate capital gain considering sale consideration of Rs. 10 lacs. As the property is co-owned by three legal heirs, I think you should go with sale consideration of Rs.10 lacs. The resultant tax would be very minimum in the hands of each co-owner and the need for investment in 54EC bonds may not arise. Calculate the total income and tax liability in the hands of each co-owner before selling the property. You can add amount from your savings for investment purpose.
1) As co-owners you inherited the property after your father's demise. If the shares of the co-owners are determined, then the sale proceeds and the cost of acquisition will be distributed in the same proportion. Otherwise, it will be distributed equally. If your father made out a will, his share will be distributed in accordance with the will. Otherwise, his share will be distributed under Hindu Succession Act, if you are a HIndu.
Its also possible to treat the co-owners as members of AoP and assessed accordingly.
2) As your total income from sources other than LTCG is more than the basic exemption, the adjustment of LTCG against basic exemption does not arise. The adjustment against basic exemption arises if the total income from sources other than LTCG is less than the basic exemption limit and such adjustment will be limited to the shortfall.
3) As mentioned in my first reply, it is sufficient to invest only the capital gains amount in the capital gains bonds. Its not necessary to invest entire sale proceeds. Further, the long term capital gains as determined by taking the deemed sale consideration is less than the sale price, he can invest that amount only. In the example given by you, the deemed sale consideration is Rs 10 Lakhs, while the actual sale consideration is only Rs 5 Lakhs. However, if the long term capital gains is, say, Rs 7 lakhs, there is no need to invest Rs 7 laksh in capital gains bonds. Its sufficient if the investment is made only to the extent of actual sale consideration, i.e., Rs 5 Lakhs, as you cannot invest what you have not received. There is no need to add the difference from your savings account.
Hi,
Hope that you are doing well!
Regarding your Questions, kindly find the following:
1) can I take the average of 1999 and 2002 circle rates for indexation purposes? will the income tax dept accept this average as FMV of 2001?
Ans - No, You can not take average rate. It is not in accordance with the Legal Provisions. You may consult the Registered Valuer to confirm whether Circle Rate for 2001 is available or not. If it is not available, you can take value of 1999 as Circle Rate for Indexation calculation.
2) for example assume 10 lakhs is today's circle rate and sale consideration is 5 lakhs and the property was bought in 1986 for 10000 rupees, taxable capital gain after indexation is 7 lakh. now I want to know can i add 2 lakhs from my savings to the 5 lakhs I got from selling the property so that i can put full taxable capital gains in bonds to avoid capital gain tax?
Ans - Definitely you can put full taxable capital gains in Bonds even though you have received lesser amount as sales consideration.
b. You have mentioned that the Asset is owned by 4 People, so Taxable Capital Gain will be divided among all 4. You get Basic Exemption Limit even if you have Income from Capital Gain. So, before taking any decision regarding Investment in Bonds, etc. it is advisable to check the Taxable Income of all 4 Co-owners.
I hope this would answer your Question. If you need further clarification or guidance, please feel free to contact me.
No you need to find circle rate for 2001 or get a valuation report from government approved valuer.
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