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How are capital gains on property calculated?


I bought a commercial property in 1999, paid the full amount and earned rent on it. The property was registered in 2011. I sold the property this year. To calculate capital gains, to which year should the acquisition cost be indexed—2001 or 2011?

— Name withheld on request

According to the facts provided, it is understood that full payment was made for the purchase of the said commercial property and possession was also obtained in 1999. The registration of the property was only completed in 2011.

There is much debate as to which date should be considered as the date of acquisition of a property, when the date of registration is different than the date of possession/completion of payment. There are different judicial precedents, depending on the facts of the case and the underlying documentation.

The general view is that the date of acquisition should be the date on which the purchaser has an unrestricted right to the acquired property.

In the instant case, as both the payment and acquisition appear to have been duly completed in 1999, the same may be considered as the year of acquisition for the purpose of computation of capital gains. However, given the differing views, litigation in such a situation cannot be ruled out and would require a thorough assessment of the underlying documents/agreements/terms.

Considering that the holding period of the property is longer than two years, any gain / loss arising from the transfer of the same will be taxable as a long-term capital gain or loss. Where the acquisition date is considered to be 1999, the fair market value of the property as at 1 April 2001 or the actual cost of acquisition, at your option, can be considered as the acquisition cost of the property and indexation should also be considered accordingly. .

I took voluntary retirement from the railways and transferred 50% of my total retirement corpus to my wife’s bank account and parked it there as a fixed deposit (FD). I want to know who is liable to pay tax on interest income earned on this BD?

-Brijesh Aggarwal

According to the provisions of the Income Tax Act, 1961, any sum of money that you give as a gift to your wife is not taxable income in her hands. Moreover, in light of the clubbing provisions of the Act, any income that accrues to your wife from the money given as a gift will be taxable in your hands.

Accordingly, interest income earned directly from fixed deposits in your wife’s name from the funds donated by you will be added to your income and taxable in your hands.

Based on certain judicial precedents, there may be a view that any additional reinvestment of interest income from these fixed deposits by your wife should not be included in your income and should be taxed in her hands.

Parizad Sirwalla is a partner and head, global mobility services, tax, KPMG in India.

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Updated: 19 November 2023, 11:01 PM IST

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