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'When in doubt about real estate acquisition date, consider larger amount to calculate taxable capital gains'

One has the option of substituting the fair market value on a later date, as cost and then indexing it

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I am a retired person and my age is 64. In 1991, I bought a house in Kalyan for Rs 4.75 lakh, inclusive of stamp duty and registration. As per your last response, the fair market value of the flat is considered as April 2001. Please clarify which ITR needs to be filed for long-term capital gain. Every year, I file returns online through ITR-1. After investing in capital gains bonds from REC or NHAI, will I have to give details of selling flat in the ITR?

You have the option of substituting the fair market value as on April 1, 2001, as your cost, and then indexing it rather than taking the actual cost incurred by you in 1991. Your choice of ITR to fill will be decided only next year but if you take the assessment year 2017-18 as an example, it would have been form ITR 2 instead of form ITR 1. The rules will be clear only next year, but again, if you take the current year's model, you would need to disclose the capital gains earned by you and claimed as exempt due to investment in REC/NHAI bonds despite the overall capital gains being fully exempt.

One of my clients had purchased a flat in Mumbai in an under-construction building for Rs 80,19,350. He had paid Rs 3,83,600 in stamp duty, Rs 30,000 as registration fee and scanning charges of Rs 1,980. Agreement for sale was made on January 17, 2008, which was registered on January 23, 2008. Possession letter was given dated June 25, 2012. Now, my client wants to sell this flat for Rs 2.25 crore and the agreement may take place in September 2017. Please let me know which date has to be taken into account for computing long-term capital gains? Please tell me whether we have to take January 17, 2008, or the date of possession i.e. June 26, 2012?
-Pratik Savla

It is not free from doubt whether the date of acquisition will be treated as January 17, 2008, which is the date of the agreement for sale or June 25, 2012, which is the date of possession. For the purpose of this query, we are ignoring the registration date of January 23, 2008, since it will not matter for the purpose of calculating the long-term capital gains whether the date is January 17, 2008, or January 23, 2008. The original cost as mentioned by you is Rs 84,34,930. This assumes you have not sought a deduction of the stamp duty amount under section 80C. The difference in the indexed cost will be as follows - If the date of acquisition is January 2008, then the indexed cost of acquisition will be Rs 1,77,85,279 (272 divided by 129 multiplied by the cost); if the date of acquisition is June 2012 then the indexed cost of acquisition will be Rs 1,14,71,505 (272 divided by 200 multiplied by the cost). Accordingly, the long-term capital gains will be around Rs 47 lakh (Rs 2.25 crore minus Rs 1.78 lakh) if the date of acquisition is treated as January 2008 and it will be Rs 1.01 crore if the date of acquisition is treated as June 2012. I think you have a good case to treat January 2008 as your date of acquisition. If you are planning to buy capital gain bonds or to acquire another property to shield the tax payable on these gains, then you might be better off assuming the larger amount as taxable capital gains and planning accordingly. Please consult a professional before acting in any manner on this advice.

I am a retired bank officer. I have placed my terminal dues in bank FDs. Post retirement, I have started as an individual financial advisor. I work in life insurance, health insurance and mutual fund distribution. I have the following queries - Can I gift the FD amount after closing them prematurely to my spouse? My FDs are not giving me any returns in the real sense. Is there any format of gift deed and is it required to be registered under any of our laws? My spouse has an independent demat account. Can she invest this amount for a long term, for say, over five years?
-Narendra Dattatray Shringarpure

You can gift the money lying as a fixed deposit to your wife after prematurely encashing them. It is not clear what purpose that gift will serve though. Any income derived by your spouse from the amount gifted to her will continue to be taxed in your hands. Of course, income arising on the primary income will be taxed in her hands. For movable assets, gifts can be completed simply by handing over and acceptance by your spouse. The simple act of giving her a cheque for the amount which she accepts and deposits in her bank account can constitute a valid gift. Of course, a simple letter on plain paper forwarding the cheque as a gift and its acceptance by your spouse will be good to have on record. In any case, as already mentioned, the income from the gift will continue to be taxed in your hands. No registration is required for gifts of movable property. Once you complete the gift, the money is for your spouse to do whatever she wishes. She can use it to invest in equity shares/mutual funds/bonds, etc, or in any manner that she chooses.

THE FAIR VALUE

  • One has the option of substituting the fair market value on a later date, as cost and then indexing it
     
  • The choice of ITR to be filled will be decided only next year but if you take the assessment year 2017-18, it would have been form ITR 2
     
  • If you take the current year’s model, you would need to disclose the capital gains earned by you
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