• Question about sale of land for less than fair value and income tax

My father and his two siblings had been bequeathed a piece of rural ancestral land. Separate ownership of each of the three tracts of land was never determined. Part of the land is clearly more valuable as it has a well (the only source of water for all of that land) and is near the entrance to the land. One of my uncles constructed a charitable school on this more valuable portion of the land. Fair value of the entire property had been fixed at Rs 42 lacs. My father and the other brother sold their shares of the property to the brother who constructed the school, for a subsidized value of Rs 9 lacs each. Can my father use Rs 9 lacs as the earnings (instead of the Rs 42 lacs divided by 3)?
Asked 2 months ago in Income Tax

- Rural agriculture land is exempt from tax

- As you have not mentioned the usage of the land so assuming it as a rural non-agriculture land. In case of intestate death, share of siblings is treated as equal in the inherited property. In your case, share of each sibling is 1/3rd in the land basis on which share in FMV is Rs. 14 lacs each. If you have the genuine and strong reasons to support the difference between FMV and actual consideration received then your father can show sale consideration as Rs. 9 lacs. I suggest you to compute the capital gain before arriving at the conclusion


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Vivek Kumar Arora
CA, Delhi
4863 Answers
1052 Consultations

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For the sale of land below fair value in India, your father can generally use the actual sale price (Rs 9 lacs) for income tax purposes. However, if the sale is considered not at arm's length, tax authorities might use the fair market value to calculate capital gains.

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Shubham Goyal




Shubham Goyal
CA, Delhi
238 Answers
4 Consultations

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Is the sale deed registered?

Irrespective of it I would recommend to show 14 lakh as consideration rather than 9 lakh as you did not have any documentation to prove that such part of property was more valuable than yours and since this is an ancestral land you must have just registered a deed to let go off your right and since the right were in relation to property it could attract 50C.


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Naman Maloo
CA, Jaipur
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In the scenario described, where your father and his siblings inherited a piece of rural ancestral land, and your father sold his share of the property for a subsidized value of Rs 9 lacs, he cannot use Rs 9 lacs as his earnings.

When determining the earnings or capital gains from the sale of inherited property, the fair market value of the property at the time of inheritance is usually considered as the base value. In this case, the fair value of the entire property had been fixed at Rs 42 lacs, which implies that each sibling's share would be Rs 14 lacs (assuming equal division).

Even though your father sold his share for Rs 9 lacs, the fair market value at the time of inheritance remains relevant for determining the capital gains or earnings for tax purposes. Therefore, your father's earnings from the sale would still be based on his share of the fair market value at the time of inheritance, i.e., Rs 14 lacs, rather than the actual sale price.

It's essential to accurately report the transaction and consult with a tax advisor or financial expert to ensure compliance with applicable tax laws and regulations regarding the sale of inherited property. They can provide guidance on the proper valuation and reporting of such transactions for taxation purposes.


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CA Vaibhav Garg

Vaibhav RK
CA, Delhi
35 Answers

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