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Capital Gain Tax on Transfer of Immovable Property

The Income Tax Act, 1961 (the Act) contains specific provisions regarding taxing of capital gains arising out of sale of property. It is taxable under the head ‘Capital Gains’. The profit or gains out of transfer of an immovable property is the difference between the amount spent on its acquisition including the amount spent on improvement of the property and the consideration received on its transfer. The excess over the amount spent is the capital gain.

As per the Act the basic rule is that capital gains are deemed to be income of the previous year in which the transfer giving rise to the gains take place. Thus the year of charge is the year in which such sale, exchange, relinquishment etc. takes place. Capital gain on sale of property is assessable in that assessment year only when sale deed is executed and possession of property is handed over to the buyer. If the handing over of the possession precedes the entering into of the contract and the transferee is allowed the possession in part performance of the proposed contract, the year of taxability of the capital gains is the year, in which the contract is entered into.

Section 50C of the Act (with effect from assessment year 2003-2004) states that the consideration will be deemed equal to the value determined by the Registering Authority for the purpose of Stamp Duty. But in case the registration has not yet taken place and the possession is handed over then the following options will be available to the assessee:

  • To compute capital gain on the basis of agreed consideration as per the contract but mentioning the fact by way of a note in the computation sheet or by enclosing a letter with the Income Tax Return that registration has not yet taken place.
  • To revise the Return on registration, if time permits.
  • In case agreement has been registered and then subsequently on final valuation additional stamp duty is paid in such case also facts should be properly mentioned while filing the return.
  • In case the return has been selected for scrutiny, the latest position should be stated in course of assessment proceedings.

Tax Returns for Financial Year 2010 -11 (March 2011) has started.  Just mail us Form16/ Salary Certificate and details of other income, at  info@taxmantra.com . We would take it from there to file your return of income.

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About: 

Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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