Do you know that when you sell a property and received the consideration then you are liable to pay Capital Gain Tax
Profits or gains arising from the transfer of a capital asset made in a previous year are taxable as Capital Gains under the head Capital Gains. Important ingredients of Capital Gains are existence of a capital asset, transfer of such asset and profits or gains that arise from such transfer,
|Short Term Capital Gains (STCG)||Long Term Capital Gains (LTCG)|
|Ordinarily transferring a capita asset held for 36 months or less gives rise for STCG||Transferring a capital asset held for more than 36 months gives rise to LTCG|
|Computation of Capital Gains STCG:Full value of consideration (Cost of acquisition + Cost of improvement + cost of transfer).||Computation of Capital Gains LTCG:Full value of consideration received or accruing (Indexed Cost of acquisition + Indexed Cost of improvement + cost of transfer).|
|Where indexed Cost of acquisition :Cost of acquisition XCII (Cost Inflation Index) of the year of transfer / CII of year of acquisition.|
|Indexed Cost of improvement:Cost of improvement XCII of the year of transfer / CII of year of improvement.|
|Note : LTCGSeller has to pay the STCG and LTCGSelling cost or cost of transfer to include brokerage paid, etc. Current LTCG Tax for an individual or Hindu Undivided Family (HUF) : 20 percent of capital gains.|
Where the capital asset is transferred is land or building or both, if the full value of consideration received or accruing is less than the value adopted or assessed by stamp valuation Authority, the value adopted by such Authority would be taken as the full value of consideration. The reasonable sale consideration or Stamp Authority valuation whichever is higher may be taken by the Stamp Authority. .
Capital gains tax valuation specified date is currently 01-04-1981. Any property acquired prior to the specified date, land value as on 01-04-1981 plus DRC (Depreciated Replacement Cost) of building, if any, as on the specified date would be the cost of acquisition. The cost of acquisition would be either cost or fair market value. The cost of acquisition needs to be appropriately indexed based on the prescribed CII for the Financial Year of purchase and sale, respectively as on 01-04-1981 or on the date of acquisition and improvement after 01-04-1981.
Under Section 50D, where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or can not be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received as a result of transfer.
Full Value of consideration: This is the amount for which a capital asset is transferred. It may be in money or money’s worth or a combination of both.
Where the transfer is by way of exchange of one asset for another, fair market value of the asset received is the full value of consideration. Where the consideration for the transfer is partly in cash and partly in kind, fair market value of the kind portion and cash consideration together constitute full value of consideration.
Cost of Acquisition: Cost of acquisition of an asset is the sum total of amount spent for acquiring the asset.
Where the asset was purchased, the cost of acquisition is the price paid. Where the asset was acquired by way of exchange for another asset, the cost of .acquisition is the fair market value of that other asset as on the date of exchange.
Any expenditure incurred in connection with such; purchase, exchange or other transaction e.g. brokerage paid, registration charges and legal expenses also forms part of cost of acquisition.
Sometimes advance is received against agreement to transfer a particular asset. Later on, if the advance is retained by the tax payer or forfeited for other party’s failure to complete the transaction, such advance is to be deducted from the cost of acquisition. (1)
WAIVER: The exemption of capital gains can be claimed by investing in full (One year before sale or within two years after sale or under construction house within three years after the date of sale) or partly by investing in the house and / or bonds and partly paying the proportionate income tax to the extent of capital gains, which have not been invested as above. The assessee should not own more than one house (Other than the new house) on the date of sale; or purchase or construction of the residential house. (Section 54).
Cost Inflation Index is notified every year by the CBDT, Government of India, Delhi
Cost Inflation Index [Notification No.40/2013/F.No.142/7/2013-TPL] dated 6th June 2013.
S.O. 1464(E) – In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes published in the Gazette of India, Extraordinary, vide number S.O. 709(E), dated the 20th August, 1998, namely:-
- In the said notification, in the Table, after serial number 32 and the entries relating thereto, the following serial number and entries shall be inserted, namely:
|Sl. No||Financial Year||Cost Inflation Index|
Example I: (Specified Date 1 – 04 – 1981)
|Land extent: 1,200 sqft||Residential Building BUA: 1,200 sqft||Improvement: addition + refurbishment||Year sold|
|Year bought: 1975 in Chennai, Mylapore||Year constructed: 1975, BUA: 1,200 sqft||Year: 1990 – 91||2006 – 07|
|Land Value: Rs. 72,000/= (say “A”)||DRC: Rs. 1,08,000Say (“B”)||Rs. 1,20,000/=(600 sqft added)||Rs. 1,00,00,000|
|Value on 1/4/1981||Value on 1/4/1981A+B: Rs. 1,80,000/=||1990 – 91||2006 – 07|
Computation of Capital gain:
|Selling Price (Say “S”)||1,00,00,000|
|Selling expenses (Say “C”)||2,50,000|
|Indexed Acquisition Cost: 1,80,000 * 519/ 100 (Say “D”)||9,34,200|
|Indexed cost of improvement: 1,20,000 * 519/182 (say “E”) With Document Proof||3,42,198|
|Capital gains: S – (C+D+E) Say “CG”||84,73,602|
|S. 54 F (Exemption) Re-investment towards new residential property one year prior to date of transfer. Say “RI”)||98,00,000|
Example 2: (Specified Date 1 – 04 – 1981)
An apartment building in Thiruvanmiyur, Chennai, 860 sqft BUA, UDS of Land: 516 sqft, cost of acquisition is Rs 17,00,000/= during 1989 -1990 (As per Deed of Apartment). During the same year, an amount of Rupee 2,50,000/= was spent towards interior decoration. The property was sold during FY 2009-10 for a consideration of Rupee 90,00,000/=. Cost of sale is Rupee 2,25,000/= CII during 1989-90: 172 and 2009-10 is: 632
Computation of Capital gain:
|Selling Price (Say “S”)||90,00,000|
|Selling expenses (Say “C”)||2,25,000|
|Indexed Acquisition Cost: 17,00,000 * 632/ 172 (Say “D”)||62,46,512|
|Indexed cost of improvement: 2,50,000 * 632/172 (say “E”) With Document Proof||9,18,605|
|Capital gains: S – (C+D+E) Say “CG”||16,09883|
|S. 54 (EC) exemption Investment of capital gains in certain fund (Say “RF”)||50,00,000|
|Capital gains for an individual or a HUF (Formula for Deductible:Amount Invested / Net Consideration * LTCG)||7,15,504|
Example 3: (Specified Date: 1/4/1981)
An apartment building admeasuring 700 sqft was purchased in Chennai during 1970 at Rupee 30,000/=. During redevelopment process Builder offered 50% extra, which would make the new flat 1,050 sqft. Mr. “X” opted for 860 sqft and surrendered 190 sqft for a consideration of Rupee 13,30,000/=, which the builder has agreed to pay in six instalments during the next three financial years from FY 2010-11 and Mr. “X” has handed over the initial residential flat to the builder. CII during 1981-82: 100 and 2010-11 is: 711. Mr “X’ can claim exemption if his flat is handed over within 3 year from 2010-11 and market value of flat is Rupee 65,00,000/= (Surrendered flat composite rate as on 2010-11)
Computation of Capital gain :
|Sales consideration = Rs. 13,30,000 (Surrendered Value of 190 sqft) + Cost of construction of Flat of 860 sqft. (Say “S”)||23,62,000|
|Selling expenses (Say “C”)||0|
|Indexed Acquisition Cost: 30000 * 711/ 100 (Say “D”)||2,13,300|
|Indexed cost of improvement: (say “E”)||0|
|Capital gains: S – (C+D+E) Say “CG”||21,48,700|
|S. 54 F exemption Re-Investment towards new residential property within 2 years after the date of transfer or within 3 years after the date of transfer in an under construction residential property (Say “RC”)||65,00,000|
|Capital gains (In the opinion)||0|
Cost of Acquisition with reference to certain mode of Acquisition:
|Sl. No||Where the capital asset became the property of the assesse.||Cost of Acquisition of asset|
|a)||On any distribution of assets on the total or partial partition of a Hindu Undivided Family (HUF).||1). It shall be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee, as the case may be, till the date of acquisition of the asset by the assesse.2). If the previous owner had also acquired the capital asset by any of the modes above, then the cost to that previous owner who had acquired it by mode of acquisition other than the above should be taken as cost of acquisition.|
|b)||Under a Gift or Will.|
|c)||By succession, inheritance or devolution.|
|d)||On any distribution of assets on the dissolution of a firm, body of individuals or other association of persons where such dissolution had taken place any time before1 – 04 – 1987.|
|e)||On any distribution of assets on the liquidation of a company.|
|f)||Under a transfer of a revocable or an irrevocable trust|
|g)||By transfer from its holding company or subsidiary company.|
|h)||By transfer in a scheme of amalgamation|
|i)||By an individual house of a HUF giving him separate property to the assessee HUF any time after 31 – 12 – 1969|
Capital gains Tax Deductible for Agricultural land & Industrial undertakings:
- Agricultural land(Section 54 B)
If invested in agricultural land within two years after the date of sale. Prior to sale, the sold land must be put to agricultural use for at least two years by the assesse or his father. The net selling price can be claimed for exemption.
- Compulsory Acquisition of land and building of an Industrial undertakings (Section 54 D)
If invested within three years after the date of compulsory acquisition in establishing the old industry or set up a new industry. Deduction to include the cost of land and buildingor any rights in that as the case may be. The investment can be claimed for exemption subject to satisfy some conditions.
- Shifting from Urban Area to rural or Special Economic Zones (Section 54 G)
If invested within one year before and three years after the date of shifting in establishing the industry complete. Such amount can be claimed for exemption subject to satisfy some conditions.
The assessee can opt for cost of acquisition or fair market value as on 1 04 -1981, where the capital asset became the property of the assesse before 1st April 1981 and where the capital asset became the property of the previous owner before the 1st April, 1981 means the cost of the capital to the previous owner or the market value of the asset on the 1st day of April, 1981 at the option of the assessee. S. 55 (2) (b) (i) (ii) & (iii Liquidation)
Property acquire after 1st April, 1981, only cost of acquisition should be taken. The cost of acquisition needs to be appropriately indexed based on the prescribed CII for the Financial Year of purchase and sale, respectively on the date of acquisition and improvement after 1-4-1981.
The acquisition cost as on 1st April, 1981 is (Land CU 70 and Depreciated Replacement Cost of Residential Building is CU 100). Improvement is done on 1985-86 to the tune of CU 120. It was sold on 2002-03 for a consideration of CU 5,000/= Determine the capital gains as per cost of acquisition and valuation by fair market value (FMV). CII as on 1981-82: 100; 1985-86: 133 & 2002 – 03: 447 (Specified Date: 01 04 1981)
The property is in a prime location, near to Bus and Metro Station and famous temple. The plot has return frontage. The land value is increased 35% for return frontage, location & situation, size, and shape, comparing with the data land which doesnt have. Land value CU: 70 x 1.35 = CU 95 psf
Valuation by Cost of Acquisition
Valuation by FMV
Selling Price Say S: CU 5,000
Selling Price Say S: CU 5,000
Indexed acquisition cost Say C: (70+100) x 447/100 = CU 760
Indexed acquisition cost Say C: (95+100) x 447/100= CU 872
Indexed cost of improvement Say D: 120 x 447/133: CU 403
Indexed cost of improvement Say D: 120 x 447/133: CU 403
Selling expenses Say E: CU 113
Selling expenses Say E: CU 113
Capital Gains: S (C+D+E): CU 3,724
Capital Gains: S (C+D+E): CU 3,612
Method Of Property Tax In Chennai
Method Of Property Tax Assessment
Example: 1 : Residential Properties
If Your Property Lies In Binjala Subramanian Street At T.Nagar, The Basic Rate For Residential Property For That Street Is Rs.1.50 Per Sq.Ft. As Per The Basic Rates Of Residential Properties. Based On This And With Reference To The Following Property Details, The Property Tax Shall Be Calculated As Follows:
Under Section 100 Of Chennai City Municipal Corporation Act 1919, The Concept Of Reasonable Letting Value (R.L.V.) Is Being Adopted For Arriving At The Annual Rental Value And The Half Yearly Tax For The Properties Within The Limits Of Chennai City.
To Calculate The Half Yearly Tax For A Particular Property, The Annual Value Of That Property Is To Be Evaluated And To Arrive At The Annual Value, The Monthly Rental Value Is To Be Arrived At. In Order To Fix The Monthly Rental Value, The Plinth Area Of The Property And Basic Rate Of That Particular Street Is Necessary.
Prior To 1993-94 (General Revision Of Property Tax), The Assessing Authorities Had Total Discretion In Fixing The Rental Value In The Absence Of Basic Rates For Arriving At The Property Tax . There Was No Transparency In The Assessment Of The Properties In The City.
In Corporation Of Chennai, The Residential Properties Are Classified Into 172 Locations And The Non-Residential Properties Are Classified Into 274 Locations.Thus, Separate Basic Rates Have Been Fixed For Residential And Non-Residential Localities.
A Survey Was Conducted During 1992-93 And Based On The Survey, The Basic Rental Values Per Sq. Ft. Have Been Arrived At For The Different Locations Identified In Chennai City.
Based On This The Basic Rates Were Arrived At In Respect Of Residential Properties, The Basic Rate Ranges From Minimum Of Rs.0.60 To Maximum Of Rs.2.40 Per Sq.Ft And For Non-Residential Properties, It Ranges From Minimum Of Rs.4.00 To Maximum Of Rs.12.00 Per Sq.Ft.
The Basic Rates Have Been Furnished Ward Wise / Street Wise For Both Residential And Non-Residential Properties Separately So That The Property Owners Can Easily Locate The Basic Rates For The Properties Concerned. Pl. See Property Tax Calculator.
In The Case Of A Particular Building Having Both Residential And Non-Residential Portions, The Basics Rates Applicable To Residential And Non-Residential Properties Of That Street Will Apply For The Plinth Area Of Residential Portion And Non-Residential Portion Respectively.
The Assessment Of Property Tax Is Based On The Following Factors With Reference To Any Property.
Basic Rate Of The Particular Street
Usage Of The Building (Residential Or Non-Residential)
Nature Of Occupancy (Owner Or Tenant)
Age Of The Building
The Basic Rates Given Are With Reference To Tenant Occupation And If It Is In Owner’s Occupation, Rebate Will Be Allowed.
Concessions: The Following Concessions Are Allowed While Calculating The Property Tax:
- Owner’s Occupation: If The Whole Or Part Of Any Property Is Under Owner’s Occupation, Then, 25% Of The Monthly Rental Value Will Be Allowed As Rebate For The Residential Portions And 10% For The Non-Residential Portions.
2. Semi-Permanent Buildings: 20% Rebate Is Allowed Over The Monthly Rental Value For Semi Permanent Buildings, I.E. Tiled, Asbestos, Thatched Roofing, Etc. Except Terraced Roofing Of A Particular Building Or Portion.)
3. Depreciation: Depreciation Is Allowed For The Age Of The Building At 1% For Each Year For The Buildings More Than 5 Years Old Subject To A Maximum Rebate Of 25%.
The Property Owners Can Calculate Their Property Tax Based On The Given Basic Rate And Can
Also Use The Property Tax Calculator Available At Chennai Corporation Websitehttp://Www.Chennaicorporation.Gov.In
To Calculate The Property Tax And To Verify The Correctness Of The Assessment Made By The Corporation Of Chennai.
Step 1: The Rental Value Will Be Calculated By Multiplying The Plinth Area Of Any Particular Building With The Basic Rate Of The Street In Which The Building Is Located.
Step 2: To Arrive At Annual Value Of Any Building, Multiply The Monthly Rental Value With The Common Factor Of 10.92, (The Method Of Calculation Of The Annual Value In General Has Been Furnished On Page No.15).
Step 3: The Annual Value Has Been Classified In Four Grades. After Arriving At The Annual Value, The Half -Yearly Tax Will Be Calculated As Per The Table Given Below:
Half Yearly Property Tax For Any Property Is Calculated As Percentage Of Annual Value As Per Table Given Below:
|Grade||Annual Value||Half Year Tax(As % Of A.V)|
|I||Rs.1.00 To 500.00||6.62%|
|II||Rs.501.00 To 1000.00||9.92%|
|III||Rs.1001.00 To 5000.00||11.02%|
|IV||Rs.5001.00 & Above||12.40%|
Basic Rate (For Binjala Subramanian Street) : Rs.1.50 Per Sq.Ft.
Plinth Area : Ground Floor – 500 Sq.Ft, First Floor – 500 Sq.Ft
Nature Of Construction : Ground Floor – Terraced, First Floor – Asbestos
Usage Of The Building : Residential
Nature Of Occupancy : Ground Floor – Owner, First Floor – Tenant
Age Of Building : 10 Years
Calculation Of Property Tax
|Ground Floor||Monthly Rental Value 500 Sq.Ft. X Rs.1.50 Per Sq.Ft||Rs.750.00|
|Rebate For Owner Occupation 25%||Rs.187.50|
|Rental Value After Rebate||Rs.562.50|
|Depreciation For Age 10% (@ 1% Per Year For 10 Years)||Rs.56.25|
|Rental Value After Rebate||Rs.506.25|
|Rental Value For Ground Floor||Rs.506.25|
|First Floor||Rental Value (500 Sq.Ft. X Rs.1.50) Per Sq.Ft.||Rs.750.00|
|Rebate For Asbestos Roof 20%||Rs.150.00|
|Rental Value After Rebate||Rs.600.00|
|Depreciation For Age 10% (@ 1% Per Year For 10 Years)||Rs.60.00|
|Rental Value For First Floor||Rs.540.00|
|Rental Value Ground Floor||Rs.506.25|
|Total Rental Value (506.25+540.00)||Rs.1045.25 (Or) 1045|
|Annual Value (Rs.1045×10.92)||Rs.11411.00|
|Half Yearly Tax (Rs.11411 X 12.40%)||Rs.1415.00|
Example for Valuation of the Property for the purpose of wealth Tax is determined as per rule -3
Schedule (111 ) of the WEALTH TAX ACT
VALUATION OF PROPERTY AS ON DATED -31-03-2010
Aggregate area- 635sft (undivided share of land )
Built area = 720sft
The property situated at Madras (now known as Chennai) and acquired for a sum less than Rs.50 lakhs.
un built area is less than specified area of 60%
The property is owner occupied
Cross annual income = Annual Value / 0.91 = 4423/.91 = Rs.4861/-
Add for 30% towards water and Sewerage Tax = 4860 x 1.3 = RS.6318/-
Deduction out service towards taxes = 6318 – 940 – 282 = Rs.5096/-
Deduct out going towards maintenance = 15/100 x 6318 = Rs.947/-
Net annual value = 5096 – 947 = Rs.4,149/-
Value of property for propose as per wealth tax = 4149 x 12.5 = Rs.51,863/-, Say Rs.51,860/-
The value of the property as per Rule 3 of the wealth tax act = Rs.51,860/-