How is the cost of flat acquisition calculated?

, Jagdish Shahi

The indexed cost of acquisition of the asset will be calculated as the cost of acquisition or the fair market value (FMV) as on 1st April 2001 / Cost Inflation Index (CII) of the financial year 2001-02 (ie 100) * CII sales of the year.

Further, if the actual sale consideration is less than the stamp duty value by more than 10%, the stamp duty value for the purpose of computing such long-term capital gain/loss (LTCG/L) will be treated as the sale consideration.

Since the property was inherited by you, the cost of acquisition for you will be the cost of the previous owner. Further, as per section 55 of the Income Tax Act, the cost of acquisition of immovable property purchased on or before 1st April 2001 shall be the actual cost of acquisition of such property or FMV of assets as on 1st April 2001. Taxpayer option.

As per the facts provided, it appears that the property was purchased by your mother in 1993, however, it is not clear whether the property was transferred to you before 1st April 2001. Assuming that the property was transferred to you after 1st April 2001, the cost of acquisition of such property in your hands will be treated as the actual cost of acquisition in your mother’s hands, minus the cost of improvements made by you. has grown.

While computing the cost of acquisition in the hands of your mother, you need to compare the FMV (as determined) of the property as on 1st April 2001 with the actual cost of acquisition (including brokerage expenses, stamp duty charges). renewals, etc. made before 1st April 2001) and at your option consider the higher amount in the hands of your mother as deemed cost of acquisition. You can add your expenses for renovation etc. after 1st April 2001 as cost of improvement. Since the definition of the term ‘cost of improvement’ is not free from litigation, the facts of the case need to be looked into in detail to see whether the expenses incurred for obtaining the probate order resulted in any improvement.

In addition, you should have suitable documents in support of the expenditure incurred to consider it at par with the cost of acquisition/improvement of the property.

It should be noted that repair and maintenance expenses are generally treated as regular expenses for the maintenance of the property and are not treated as capital expenditure hence cannot be included as cost of improvement Is. Separately, you are entitled to deduct the expense incurred for the transfer of the asset (including brokerage expense) from the sale consideration to calculate taxable capital gains income.

Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.