Is the capital gain calculated based on the actual purchase price
3 months ago
Is the capital gain calculated based on the actual purchase price mentioned in the sale agreement? Or will the purchase price mentioned in the sale deed be considered?
I purchased a property in 2014. As per the sale agreement the purchase price was mentioned as 75 Lakhs (Received 75 lakhs payment receipts from Builder. All transactions are through Cheque & Bank loans.
I have original receipts from Builder for 75 lakhs). But in the sale deed or registration document they mentioned 55 Lakhs (minimum market value/selling price set by Govt).
Now If I sell the property should I calculate the long term capital gain based on actual purchase price 75 lakhs or Tax department will only consider sale deed/registration price 55 lakhs?
Say If the sale price is 95 lakhs in 2024 then capital gain will be ( 95 -75 ) = 20 lakhs or it will be (95-55) = 40 lakhs. Currently I am ignoring the indexation for simplicity. Kindly suggest.
Capital gain is broadly calculated as Capital gain = ( full value of the consideration received on transfer) - ( cost of acquisition of capital asset + cost of improvement of capital asset + expenditure incurred in connection with transfer of capital asset). In the case of long-term capital gain, capital gain = final sale price - (transfer cost + indexed acquisition cost + indexed house improvement cost). LTCG is calculated based on the market value(MV) or the set forth value whichever is higher. When you buy the property paying 75 lakhs which is the set forth value of the property, the sale deed needs to be registered on the basis of the set forth value which is higher than the market value. The Builder has registered the sale deed mentioning the MV of the property to evade the Income Tax (TDS @1% which is deducted when a property is valued more than Rs.50 lakhs and deposited with the I T Authority by the Purchaser) applicable on the capital gain. Therefore, If the sale price of the property is 95 lakhs in 2024 which was bought in 2014 @ Rs.75 lakhs, then the long-term capital gain(LTCG) will be ( 95 -75 ) = 20 lakhs and the tax liability and claim for exemption under Sec.54 of the I T Act shall be calculated applying the above formula of computation of LTCG. Once the matter is brought to the notice of the Income Tax Authority, both purchaser and seller/Builder may face notice from the IT Deptt. for evading tax on financial transactions made in the course of the transfer of property. So, for more clarification and need-based advice on the subject, you need to consult with a CA or an IT Consultant to resolve the issue in the right way.
In the context of calculating capital gains for property transactions, the tax department typically considers the actual purchase price mentioned in the sale deed or registration document rather than the amount mentioned in the sale agreement. Therefore, in your case, the capital gains would likely be calculated based on the sale deed/registration price of 55 lakhs. Using your example, if you sell the property for 95 lakhs in 2024, the capital gain would be computed as (95 - 55) = 40 lakhs. It's important to adhere to the values stated in the official sale documents for tax purposes, and consulting with a tax professional could provide more specific guidance tailored to your situation, especially considering potential indexation factors and other relevant details.
Thankyou
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