Pdf capital gain

If the property is held for less than 24 months from the date of agreement - it will be considered as Short Term Capital Gains and if the property is held for more than 24 months - it will be considered as Long Term Capital Gains.

An under construction property is also considered as a property and therefore Capital Gains will be computed in the same manner as a fully constructed property. Example Capital gain in case of under construction property Mr. Rohit entered into an agreement to purchase an under construction property in Noida for Rs. The registration of the property was to be done in Dec after the completion of construction. However, Mr. Rohit sold the property to Mr.

Sachin on 14 th April for Rs. He paid brokerage of Rs. Rohit had only paid Rs. Rohit received 31 Lakhs from Mr. Sachin and directed Mr. Sachin to pay the balance Rs. Compute the Capital Gains in the hands of the Mr. Rohit for the purchase of the property, but still the cost of acquisition will be considered as Rs. This value is decided by the Stamp Valuation Authority. If the sale price of the property is less than the value adopted by the Stamp Valuation Authority i.

If the sale price of the property is more than the value adopted by the Stamp Valuation Authority i. Circle Rate, then the sale price of the property will be the actual sale price. Khurana sold a property for Rs. For the purpose of computation of Income Tax, what will be the considered as the sale price in the following cases: Case I: Value adopted by Stamp Valuation Authority i. Circle Rate is Rs. Case II: In this case, the actual sale price Rs.

In case, the seller feels that the value adopted by the Stamp Valuation Authority is higher than the actual fair market value of the property, the seller may request the Income Tax Assessing Officer to get the property valuation conducted. If the seller requests the Income Tax Assessing officer to get the property valuation conducted, in this case — the Income Tax Assessing Officer will then appoint a valuation officer to conduct the property valuation.

In case the valuation is conducted by a valuation officer, and Case 1: Value ascertained by the Valuation Officer is lower than the Stamp Valuation Authority: The value so ascertained by the valuation officer will be deemed to be the Sale Price Case 2: Value ascertained by the Valuation Officer is higher than the Stamp Valuation Authority: The Circle Rate will be deemed to be the Sale Price.

Upadhyay enters into an agreement to sell his property to Mr. He pays him advance in July but the sale is completed and registered in Oct Solution: In this case, the stamp duty value as on July will be applicable for the purpose of Section 50C.

This exception has been inserted in Finance Act and is applicable from Financial Year onwards. Example Difference in circle rate and sale price Mr. Kumar sold a property for Rs. The circle rate of the property was as follows: i Circle Rate- Rs.

Therefore, the actual sale price will be the Sale Price, which is Rs. Capital Gains Exemption on the sale of Property If a person sells a Property and reinvests the proceeds in specified assets within the specified time frame, he can claim Capital Gains Exemption. However, exemption is only allowed in case the gain arising is a Long Term Capital Gain. No exemption shall be allowed in case the gain arising is a Short Term Capital Gain.

The specified assets and the time frame within which the investment is to be made in these assets is explained below. This amount should be deposited in the scheme before filing of the income tax return of the year in which the old house has been sold. However, in case he has sold 2 houses and purchased 2 houses — then exemption will be available. This restriction is applicable from financial year onwards.

Bhatia purchased a Residential House in Mumbai for Rs. He sold this house in June for 1. He purchased another house in Oct Calculate the capital gains and the amount of exemption allowed in the following cases:- a Cost of the new house is Rs. Tax will be required to be paid on the balance 10,77, i. Gupta purchased a Residential House in Delhi for Rs.

He sold this house in June for 55 Lakhs. He purchased another house in Oct for Rs. Calculate the capital gains and the amount of exemption allowed. Solution: Period of Holding: Less than 2 years i. Example Applicability of exemption under section 54 Mr. Raja purchased a Residential House in Ahmedabad in Sept He sold this house in April for 85 Lakhs. Can he claim the exemption in the following cases:- 1. New asset purchased is a Commercial Shop 2.

New asset purchased is a Residential house 3. New asset purchased is Gold Jewellery Solution: Case I: No, Exemption will not be allowed as exemption is only for investment in a Residential House and not for investment in Commercial shop.

However, to ensure that there is no misutilisation of this section, a prohibition is inserted which states that the new residential house should be kept for a minimum period of 3 years. In such cases where the new asset is sold before 3 years, the exemption claimed earlier will be reduced from the cost of acquisition of the new asset. Example Withdrawal of exemption under section 54 Mr. Kohli sold his old Residential House in May for Rs.

The Capital Gains arising on this sale was Rs. He purchased another house in Dec for Rs. As the purchase price of the new house is more than the Capital Gains amount of Rs. However, he sold the new house in June for Rs. Calculate the taxable capital gains for FY and FY If the new asset is sold after 3 years, its actual cost of acquisition will be considered. This amount should be deposited in the scheme before the filing of the income tax return of the year in which the old house has been sold.

Exemption will be allowed if the assessee already holds 1 residential house other than the new asset but will not be allowed if the assessee already holds more than 1 residential house on the date of sale. However, in case he has sold 2 assets and purchased 2 houses — then exemption will be available for both the houses.

The exemption is not available on an aggregate basis, but will be computed considering each sale and the corresponding purchase, adopting a combination beneficial to the taxpayer.

Example Exemption under section 54F Mr. Saraogi sold a Commercial shop in May for Rs. He had purchased this shop in Feb for Rs. Apart from this property, Mr. Saraogi already owns a Residential house. Saraogi has reinvested the amount in purchasing a residential property and he does not own more than 1 residential house apart from the one which he is now purchasing, he can avail the benefit of Section 54F.

Moreover, as the value of the new residential house is not less than the net sales consideration, therefore the entire amount of capital gains will be allowed as an exemption under Section 54F.

It includes residential units also, like flats in a multi-storeyed complex. The date of commencement of construction is irrelevant. Construction may be commenced even before the transfer the old asset.

Subramanya Bhat [] 28 Taxman Kar. The requirement of the law is that the assessee should purchase a residential house within the specified time and the source of funds is irrelevant. UO , Muneer Khan v. It does not matter whether the house is constructed on an agricultural land or on other land. CIT v. Similarly, allotment of a flat or a house by a co-operative society, of which the asseessee is the member, is also treated as construction of the house Circular No.

Further in these cases, the assessee shall be entitled to claim exemption in respect of capital gains even though the construction is not completed within the statutory time limit [Shashi Verma v CIT ITR MP ]. Circular No. This amount is not taxable in the hands of the legal heirs also as the unutilised portion of the deposit does not partake the character of income in their hands but is only a part of the estate.

However, Finance Act has introduced an amendment in Section 54EC and with effect from Financial Year onwards, this exemption can only be claimed for sale of Land and Building only.

Even if the Assessee takes a loan or advance on the security of such long term specified asset, he shall be deemed to have converted such long term specified asset into money on the date on which such loan or advance is taken. AY onwards, the investment made by an assessee in these Capital Gain Bonds should not exceed Rs. They sold one of their commercial properties in Oct for Rs.

This property was purchased in April for Rs. RST invested Rs. Compute the taxable capital gains. Parveen P. Compulsory Acquisition It must have been used in the 2 years immediately Actual amount invested in preceeding the date of transfer the new asset of the 54B Individual for agricultural purposes either Capital Gain whichever is by the assessee or his parent.

The asset transferred should be a long term capital asset. Net consideration price 6. The time period extended should be in relation to such amount of compensation as is not received on the date of transfer. Moreover, the extended period shall be reckoned from the date of receipt of the amount of compensation. In such cases where the gains are allowed to be invested even after filing of ITR for that year, such gains are required to be deposited in the Capital Gains Account before the filing of the income tax return.

These gains are required to be deposited in the capital gains account only in case the new asset is not purchased before the filing of the income tax return. In case the new asset is purchased before the filing of the income tax return, it is not necessary to invest the amount in a Capital Gains Account.

X sold a residential house in Aug and intends to claim exemption by purchasing another residential house. To be eligible to claim exemption under Section 54, he is allowed to purchase the new residential house before Aug Financial Year is required to be filed before 31st July All branches of these 28 banks except rural branches are authorised to open the capital gains account.

In case of Type A Account, the deposit office shall issue a pass book to the depositor wherein all amounts of deposits, withdrawals, together with the interest due, shall be entered over the signature of the authorised officer of the Bank.

The interest rate on this account is equivalent to the interest paid on fixed deposits by the bank. In case of Type B Account, the deposit office shall issue a deposit receipt wherein the principal amount of deposit, date of deposit, date of maturity of deposit shall be entered over the signature of the authorised officer of the Bank. Which account to choose? Capital Gains Account Type A is advised when the amount of capital gains is to be used for construction of a house as the amount will be required to be withdrawn in various stages.

Type B Term Deposit Account is advised when the amount of capital gains is to be utilised for purchase of a house.

Under the cumulative option — the interest is re-invested and the total amount is paid at the time of the completion of the term period or at the time of withdrawal whichever is earlier. Under the non-cumulative option, the interest is paid at regular intervals and is not reinvested.

Murthy purchased a residential house in April and sold the same on 25 th Aug Capital Gains arising on the sale of the house amounted to Rs. He could not purchase another house before filing of the income tax return for financial year i. He did not purchase a new house before 24th Aug and neither did he construct a residential house till 24th Aug Is he entitled for capital gains exemption under Section 54? D Bhaskar. Uniq Manju. Kyriakos Farmakis. Soumya Shankar. Pearl Ogayon. Pokemon Trainer.

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Ketan Dhameliya. Lecture Notes. Gaby Hayek. Sutri Rochman. Raz Zezz. Anser Pasha. Amira Seddiq. Analyn Taguran Bermudez. Arnold Lunday. Abraham Perez. If the capital gains are not taxed, certain individuals and group will receive a preferential treatment over others which will undermine the progressivity of tax revenue. Further CGT, prevents misallocation of resources and minimise the opportunities for tax avoidance. CGT will help to decrease the unnecessary tax burden on consumers who might otherwise required to pay a high amount of tax in the form of VAT, NBT , Excise duty etc which affect the poorest of the poor rather than wealthy community.

Generally, transactions relating to real estate, condominium, membership interest in a company and other financial assets are taking place among the rich community. In such context, charging CGT is comparatively a better source of income to the government rather than increasing other forms of taxes, which will cause more burdens on an average consumer. In , during his speech on budget allocation of the country the former Finance Minister of Sri Lanka Ravi Karunanayake proposed a revised system of taxation of the country.

He suggested a simpler tax regime with minimum tax exemptions and a broadened tax base. It was argued that this tax to be equitable as it will bridge the income gap among the stake holders and assist the government initiatives in poverty alleviation. Accordingly the new Inland Revenue Act has imposed a CGT on the gain from the realization of an asset with effect from 1st day of April Tax on immovable property levied in the form of land tax for two years from In immovable property was included in the capital levy.

Taxation on capital gains was introduced as part of the Kaldor Reforms in and it last until the year in The CGT was imposed under sec. Under the above law change of ownership of any property and gains from certain transactions such as surrender or relinquishment of any right in a property were considered as capital gain.

Therefore, immovable and moveable properties were subject to be liable for CGT. The formation, dissolution and amalgamation or merger of companies or businesses was liable to CGT.

The law provided certain exceptions for each gain. Under the old laws, the rate of the CGT was depending on the period of ownership held by the owner.

The shorter period of ownership leads to higher the rate of the tax. The rate varies depending in the period of ownership. While the ownership duration held in possession for more than 25 years was exempted from CGT, the period of ownership less than two years was treated as a trading income and it was taxed at the normal tax rates.

It is submitted that there were several tax exemptions under old law with regard to CGT and such exemptions have not been taken into consideration when drafting new act.

The main reason for the abolition in was to promote investment and for the economic development of the country. Due to inadequate revenue to run government there was a need to attract investors from both foreign and domestic levels. The main reason is the government was able to collect less amount of revenue through CGT.

There are certain difficulties in administrating CGT which resulted in insufficient revenue collection of the country. Abolition of CGT has result on un-locking of capital for new investors.

Therefore the reason behind re-introduction of capital gain taxes CGT which was abolished from is to increase the volume of direct tax. The intention of the legislature is revealed from parliament debates that one segment of the community is deriving benefits from real estate in Sri Lanka, including land and condominium properties; therefore it would be equitable to collect taxes from this group of community.

The available data of the Inland Revenue Department witnessing that in recent time the revenue as a percentage of GDP has been on remarkable decline over a long period of time. This leads to a serious concern for the authorities responsible and accountable for economic management and development of the country.

Therefore an attempt is made to examine the key elements of the capital gains regime in order to determine its impacts on the current legal system.

It was found that when the CGT was in force under the previous laws, it amounted to 1. The income tax on gains introduced to impose is not restricted to immovable property but extends to all types of assets including immovable, movable, tangible and intangible etc. As a result, gains from unlisted shares and other types of financial benefits will be liable. Further, the tax is applicable on gains from liabilities in addition to assets.

Therefore, debts and loan benefits also will be liable to CGT. However it is noted the income tax free status is continue to apply for the sale proceeds of listed shares under the new Act. The capital gain will be the result of sale price less the price of purchase.

In addition, expenditure on advertising, 6 Suresh R. The new Act clearly defined the terms such as capital assets, cost of assets, realization of assets and consideration for the purpose of calculating CGT. The cost of the asset will be allowed to deduct from the price of purchase. This cost includes the expenditure incurred in acquiring the asset such as construction, manufacture or production of the asset and expenditure of altering, improving, maintaining or repairing the assets.

It further includes the incidental expenditure in acquiring and realizing of an asset. Under the Act the term realization means that a person parts with the ownership of the asset, including when the asset is sold, exchanged, transferred, distributed, cancelled , destroyed , expired or surrendered.

It is important to note that under new Act the CGT is taxed at a flat rate of 10 percent, irrespective of the period of ownership held by the owners of the asset. The general rule under the new act grants a special relief in relation to the principle residential house of an individual. The transfer of principle residential house owned by the individual continuously for the three years immediately before disposal by the person would not attract the tax provided it has been occupied by the individual continuously for at least two of those three years calculated on daily basis This relief is restricted to the houses fulfilling above requirement.

In addition to the general rule there are special rules enacted under the Act. There are certain gifts by individual may not be tax when the donor transfers it to a special category of donee such as charitable institutions. Transfer of properties by parents to children is subject to special rule. The Act makes a special provision in relation to residential individual where a gain from realisation of an investment asset is less than Rs.

Apart from the reliefs, there are a few exemptions under the Act. The trading stocks or depreciable assets are not treated as realization of an asset for the purpose of CGT. Transfer of assets from one spouse to another in a bona fide separation and realization of an asset on a death of a person are a few exemptions, in which CGT will not arise.

Hence, the challenge is to ascertain the cost base with evidence.