• Do I owe Capital Gains Tax on out of court settlement on real estate dispute

I inherited a small plot of land from my deceased father back in the 80s. In the 90s, the said property was illegally occupied and ownership was claimed by some 3rd party using fabricated documentation. A civil suit was filed in the local court to dispute the ownership of the illegal occupants and has been going ever since. Recently, I reached an out of court settlement to withdraw my suit and letting the opposite party's claim of title and possession stand for a monetary compensation of 50L

Question: do I owe Capital Gains Tax on this amount? If not, would this amount be taxed as income tax (under the various slabs) ? Or would I not owe any tax at all ?
Asked 9 months ago in Capital Gains Tax

It is subject to capital gain tax subject to review of out of court settlement agreement 

 

Please share it on aroravivek1982@gmail

Vivek Kumar Arora
CA, Delhi
4863 Answers
1052 Consultations

5.0 on 5.0

Hello,

Hope you are doing well!!

 

The transfer of a capital asset can result in capital gains tax. If you received a monetary compensation of 50 lakh (5 million) INR for withdrawing your civil suit and relinquishing your claim to the property, it's possible that this could be treated as a transfer of a capital asset. Capital gains tax could potentially be applicable.

The capital gains would typically be calculated as the difference between the compensation received and the cost of acquisition of the property. Depending on whether the property was held for the short term (less than 2 years) or the long term (more than 2 years), it would be categorized as short-term capital gains (STCG) or long-term capital gains (LTCG). Different tax rates would apply to these categories.

 

Given the complexity of your case, a thorough review of the out-of-court settlement agreement.This review would help determine the legal status of the compensation, its categorization as capital gains or income, and the potential applicability of any exemptions or deductions.

 

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

 

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
238 Answers
4 Consultations

5.0 on 5.0

Dear Sir,

 

Hope you are doing well.

 

Yes, it will be taxable subject to out of court settlement agreement.

 

Please take a phone consultation for detailed discussion. We can also assist you in capital gain calculation and entire procedure.

 

 

Payal Chhajed
CA, Mumbai
5188 Answers
291 Consultations

5.0 on 5.0

Are you entering into any agreement for such out of court settlement?

 

Hope you find the information helpful, if yes do rate if 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo
CA, Jaipur
4280 Answers
98 Consultations

5.0 on 5.0

Any amount received as court settlement will be taxed in income from other source and not as capital gain subject to tax as normal slab rate, however you can adjust cost incurred for legal case purpose

 

If amount is received by decree of a court order than amount is 100% exempt otherwise it will attract tax

Vishrut Rajesh Shah
CA, Ahmedabad
928 Answers
39 Consultations

5.0 on 5.0

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