My late father bought a piece of land in 1999. The exact fees he paid are not available. He gifted it to me in August 2022 through a duly executed gift deed on which the appropriate stamp duty was paid. Now I am planning to sell this plot for two Crore rupees in November 2024. Can you help me understand how to calculate capital gains? Would indexation take place from 1999 or from 2022?
In relation to capital assets received as a gift or inheritance, the cost for the calculation of capital gains should be regarded as the amount paid by the original owner who acquired it for consideration. In addition, if the asset was purchased before April 1, 2001, the seller can take the fair market value of the asset on April 1, 2001 as the acquisition value. Because the plot in question was purchased before April 1, 2001, you can use the market value of the plot as of April 1, 2001 as the cost price. To determine the fair market value of the plot, you need a valuation report from a registered appraiser.
According to the valuer’s report, the fair market value cannot in any case be higher than the stamp duty valuation as on April 1, 2001.
Furthermore, the holding period calculation period starts from the date it was acquired for consideration. So your holding period would start from 1999, and the capital gains would be treated as long-term capital gains since the combined holding period is more than 24 months.
Although the recent budget has eliminated indexation benefits for calculating long-term capital gains, a resident individual and an HUF can still choose to pay tax on long-term capital gains arising from the sale of land or buildings at a lower rate of 12.50%. on long-term capital gains calculated without indexation, or at 20% on long-term capital gains calculated with indexation.
How to calculate tax on a gifted lot
Although the law allows you to consider the previous owner’s costs as acquisition costs, as well as the previous owners’ holding period in the event that the asset is received as a donation, it does not explicitly state that the indexation benefit will also be available from the date on which the paid previous owner acquired it. However, strictly speaking, you can take the fair market value of the property as of April 1, 2001 as your costs, but the benefit of indexation would be available to you from August 201222 if you follow the terms of the provisions. However, some high courts such as the Gujarat High Court, the Delhi High Court and the Bombay High Court have held that since the costs of the previously paid owner have to be replaced, the indexation should also be allowed from the date of purchase . by the previous owner or 1-4-2001 if the market value on that date is used.
Please note that you do not have the indexation benefit available for calculating capital gains to avail the exemption under Sections 54F and 54EC in respect of a parcel of land.
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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
