Hello, we are planning to buy an apartment in Hyderabad and get it registered by January, 2018. The said property is a 10 year old apartment flat. The seller got that flat through a gift deed from his father in 2008. The seller's father has acquired the land of 817 sq yards (on which the apartment has been built and the considered flat is part/portion of the apartment) in 1969 and gave away for development in 2005 and he (seller's father) gifted one of the flats of his share through development of property to the seller through a gift deed. At the time of the gift deed registration (in Feb 2008), the considered value is Rs. 27,00,000 and now he is selling it for Rs. 65,00,000. Now my questions are, what would be the capital gains amount in this transaction and how is it calculated? What would be the tax the seller might have to pay on the capital gains arising in this sale? The points to consider are: The seller's father bought acquired an independent house of 817 yards in 1969 for an unknown price and he entered into a Registered Development Agreement in 2005 to develop an apartment complex through which the seller's father got a share in number of flats. Then in 2008, the seller's father gifted the above considered flat (one of his share) through gift deed in which the flat value was considered for Rs.27,00,000/- to the seller. Now, seller is selling the same flat for Rs.65,00,000/- Sorry if I had to say the samething again.
Hi
Cost of acquisition shall be calculated by indexing the fair market value of the property as on 01.04.2001.
Sale proceeds as deducted by such indexed COA shall give the capital gains amount.
This would be a Long Term Capital gain. The seller can invest in another house property subject to certain conditions or notified bonds in order to claim exemptions from capital gains.
Hi,
The capital gain in the hands of the seller will depend upon the fact whether his father has paid the capital gain tax at the time of redevelopment or not?
Please let us know if his father has paid the tax or not?
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Hello,
Please provide the valuation of the flat as on 2005, the date on which the arrangement was made. Gift deed value cannot be considered as Cost of Acquisition in this case.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Thanking You.
Regards,
Rohit R Sharma
BCOM, FCA, LLB, CERT. FAFP
As it is a gifted property, the cost of acquisition in the hands of the donor will be taken as the cost of acquisition in the hands of the donee and capital gains will be accordingly calculated.
In your case, the land was acquired by the seller's father in 1969 but he gave it under Joint Development Agreement in 2008. He ought to have been subject to capital gains then. Now, the seller acquired one flat in 2008 by way of gift from his father. The cost of acquisition in the hands of the seller is not Rs 27 Lakhs but the cost of acquisition in the hands of his father, his donor, when the flat was acquired in 2005 under the JDA. The value adopted then for the purpose of LTCG in the hands of the father of the seller will be the cost of acquisition in the hands of the seller. You need to find out such value with the documentary evidences and determine Long Term capital gains now.
However, having said this, you need not worry about the capital gains in the hands of the seller. If the seller is a resident, you need to deduct tax @ 1% on the sale value, i.e., Rs 65 Lakhs, which will be Rs 65,000/- . You can deduct that amount and remit it and issue 26QB.
Hi,
Firstly, I don't think you concern yourself with the taxability of the seller's income. Nevertheless, to give an exact answer to your question, we will need the details of the development agreement entered into by the seller's father.
In India, capital gains is calculated as the difference between the sale consideration and the indexed cost of acquisition. The capital gains is taxed at the rate of 20%. Indexed cost of acquisition is increasing the cost of acquisition as per the inflation inflation index, to account for inflation.
Now, in your case, the seller was gifted the property by his father, who had originally purchased it in 1987 and developed it in 2005. The amount of Rs. 27 lakhs cannot be considered as the cost of acquisition as the seller's father had originally invested in 1969, and nothing thereafter.
Trust this clarifies.
Regards,
Keerthiga Padmanabhan
M.Com., CA, LL.B
