Cost of acquisition based on Sale Deed value

I booked an under-construction apartment last year (2014) in Bangalore. At that point, Builder sent me two different agreements - a sale agreement (that described the UDS) and a construction agreement, which roughly divided the total costs into two halves - land value and construction value.

Now, the apartment is closed to possession and builder is forcing me to do a sale deed just based on the sale agreement (which is based on UDS - roughly half of the total cost). I am not sure why the registration+stamp-duty charges are being calculated on land value (and not the total cost=landValue+constructionValue). Isn't this illegal ?

I am asking this because if tomorrow I sell the property my cost of acquisition of the property will be shown as the one on the sale deed (which i guess will be the land value ?). This will increase my capital gains by a huge amount. Is there a way to include construction costs into my cost of acquisition or does it always have to be the sale deed value?
Asked 1 year ago in Capital Gains Tax from Bangalore, Karnataka
I agree that this method of splitting purchase consideration into land value and construction value is unethical to certain but is not illegal, as you are getting title on undivided share of land, the sale value of which is based upon the stamp duty value. The rest is the cost of construction that goes to the builder as his revenue for his services.

Now coming to your question, the property you are acquiring is an apartment, which comprises the undivided share of land and the cost of construction of the flat. Hence, your cost of acquisition of your property is the value as per the sale deed, evidencing the sale of land and the cost of construction as per the construction agreement. As and when you sell the property, the total cost will be considered as the cost of acquisition and the sale value in excess of such cost of acquisition, after indexation, will be your long term capital gains, if you sell it after 3 years from the date of your acquisition.
So by executing the sale deed and the construction agreement, you will not lose anything. 
B Vijaya Kumar
CA, Hyderabad
290 Answers
5.0 on 5.0
  Talk to B Vijaya Kumar
Iam sorry for the delay in my response. Lot of CAs had hectic time to meet the tough dead line of filing tax audit returns by 30th Sept. 

I hope that there is no increase in the guidance value from 1st Oct, as apprehended by you/your builder and the old guidance value continues to hold good.

The minimum value that should be shown as the sale consideration in the sale deed is the guidance value. If its more, there is no issue, except that the stamp duty will be more. 

If the sale value is less than the guidance value, the seller will have to pay capital gains as if the sale price is the guidance value. In the case of buyer, the difference between the guidance value and the sale value will be considered as deemed income.

B Vijaya Kumar
CA, Hyderabad
290 Answers
5.0 on 5.0
  Talk to B Vijaya Kumar

Ask a Question

Get tax advice from top-rated chartered accountants. It's quick, easy, and anonymous!
Ask a question

Other Questions

Chartered Accountants

Abhishek Dugar
CA, Mumbai
773 Answers
5.0 on 5.0
Shyam Sunder Modani
CA, Hyderabad
955 Answers
4.9 on 5.0
Rohit R Sharma
CA, Mumbai
719 Answers
5.0 on 5.0
Vishakha Agarwal
CA, Bangalore
213 Answers
5.0 on 5.0
Shiv Kumar Agarwal
CA, Delhi
197 Answers
5.0 on 5.0
Lalit Bansal
CA, New Delhi
76 Answers
5.0 on 5.0
Vishrut Rajesh Shah
CA, Ahmedabad
194 Answers
4.9 on 5.0
B Vijaya Kumar
CA, Hyderabad
290 Answers
5.0 on 5.0
Ria Nagpal
CA, Ahmedabad
28 Answers
5.0 on 5.0
Bhagyashree Kankaria
CA, Pune
26 Answers
5.0 on 5.0