Capital Gains Taxation for AY 2018-19 (Union Budget 2017-18)


Capital Gains Taxationfor AY 2018-19 (FY 2017-18)

1.        Shifting of base year

The Budget has proposed to shift the base year for the purpose of indexation from year beginning April 1, 1981 to April 1, 2001. This implies that for the purpose of computing indexation benefit, the cost of acquisition of any property purchased before April 1, 2001 will be deemed to be higher of actual cost or the fair market value as on April 1, 2001.
Cost of inflation index (‘CII’) notified for the purpose of computing the capital gains has shown a fourfold increase from the year 1981 to 2001, whereas there has been a fivefold increase in the rate of inflation over the same period. This has led to lower indexed cost of acquisition, increasing the tax liability. Shifting of base year will help reduce this gap. This will also mitigate the difficulties of tax payers in computing the capital gains due to non-availability of information regarding the fair market value in the old base year beginning April 1, 1981.

Cost of index for FY 2001-02: 426
2.     Holding period of immovable property(Reduced from 36 months to 24 Months)

At present, in order to avail the indexation benefit and the concessional tax rate of 20% on transfer of a long-term capital asset, certain assets are required to be held for a period of more than 36 months. With a view to promote investment in the real estate sector, the Budget proposes to reduce the holding period for immovable property from 36 months to 24 months.
3.   Investment of Long term Capital Gains

The current tax provisions provide for exemption of long term capital gains to the extent of INR 50 lakhs from tax, if the taxpayer invests the whole or any part of capital gains in National Highway Authority of India or Rural Electrification Corporation Limited bonds within the specified time. In order to stimulate investment and growth in other sectors through funding, the Budget proposes to extend this incentive to other Central Government notified bonds redeemable after 3 years. Though the tax payer will have options for investing in different bonds, the investment limit of INR 50 lakhs has not been altered.
4.   Capital gains arising in Joint Development Agreements (‘JDA’)

The taxability of capital gains arising on transfer of title to the land from the land owner to the developer in a JDA has always been a contentious issue. From the perspective of land owner, taxability of capital gain arises once the land is transferred for ascertained consideration. To address the satisfaction of the term ‘transfer’, the definition was widened to include ‘transfer’ as contemplated under provisions of Transfer of Property Act. However, there was no prescription for ascertainment of the consideration. This situation led to litigation as the consideration was received by the land owner only over the duration of the project. The timing difference resulted in undue burden of paying high capital gains tax for land owners without having the funds to do so.
In order to reduce the burden on land owners being individuals or HUFs, the Budget proposes to consider the transfer as taking place in the year in which the development of the project is completed and taxing the capital gains in the year in which the certificate of completion is issued. The fair value of consideration for such transfer shall be deemed to be the aggregate of the stamp duty value as on the date of issue of the completion certificate and the consideration received in cash. Tax withholding at 10% is also proposed on the cash consideration payable to the land owner.
Though the proposed provisions intend to provide certainty, practical aspects such as part transfer of rights, do leave scope for anxieties and litigation.
5.   Exemption under Section 10(38) of the Act

It has been proposed to restrict the exemption available on sale of listed shares, only to such shares which have suffered STT on purchase. The exceptions to this provision are as follows:
  –  Shares purchase before October 1, 2004
  –  Other shares to be notified by the Central Government, which are indicated:
   •  Shares acquired in IPO
   •  Shares acquired in FPO
   •  Shares issued as bonus or right shares, etc.

Though this provision has been introduced as an anti-abuse measure, it is important to note that the instances of sham transactions on any stock exchange are far and few. Further, the notification outlining the acquisition of shares not liable to these restrictions, should specifically include shares issued as part of ESOPs and shares acquired before the listing of the company.

6.   Conversion of Preference shares to Equity shares to be tax neutral

The Budget proposes to amend section 47 of the Act, stating that conversion of preference shares of a company to equity shares will not be treated as transfer. The absence of this provision had raised concerns as conversion of debentures into equity was specifically not treated as transfer. This is therefore a welcome move and should provide certainty going forward. Having said so, though this provision is proposed to be prospective, it is likely that the tax payer may contend that this amendment is clarificatory and should not adversely impact conversion in past.

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42 thoughts on “Capital Gains Taxation for AY 2018-19 (Union Budget 2017-18)

  1. Is this rule eligible is for property purchased in the past or after 31th March 2017. eg: If I had purchased a flat in Jan 2015, will it now be eligible for LT Capital gains as I would have held it for 2 yrs?

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  2. Proposed amendment promote the real-estate sector and to make it more attractive for investment, it is proposed to amend section 2 (42A) of the Act so as to reduce the period of holding from the existing 36 months to 24 months in case of immovable property, being land or building or both, to qualify as long term capital asset.This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.Capital asset held more than 2 years on or after 01 April 2017 will be considered as Long term asset. To determine Long term capital assets, capital asset should be held 24 months or more immediately preceding the date of transfer( on or after 01 April 2017).

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  3. Sir, I wish to ask whether period of 36 months for availing benefits under LTCG has been changed to 24 months ? I had purchased a flat in Oct,2014 and going to sell at a loss of Rs 2.0 lacs due to recession, How will be subjected to income tax liability since I am having loss. Thanks

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  4. Yes, w.e.f. 01 April 2017, POH for Capital asset (being land or building or both) is reduced from 36 months to 24 months. Assets should be transferred on or after 01 April 2017 to avail reduced period of holding (POH). Tax implications:If you sell you house property after holding it for a period of 24 months ,any income arising will be treated as long term capital gain provided that property is sold after 31st March 2017. If you Sell your property in loss there will be no tax liability arise and loss will be treated as long term capital loss. It will be set off against any other long term capital gain arise during the year. And if it is not set off during the year due to absence of any other long term capital gain then you may carried forward to next year. In the subsequent year(s), such loss can be set off adjusted only against income chargeable to tax under the head “Capital gains against long-term capital gains. Such loss can be carried forward for eight years immediately succeeding the year in which the loss is incurred. Such loss can be can carried forward only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return, as prescribed under section 139(1).

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  5. Cost of acquisition of an asset is the value for which it was acquired by the assessee, Further expenses of capital nature for completing or acquiring the title to the property are includible in the cost of acquisition. Cost of improvement is capital expenditure incurred by an assessee in making any additions/improvement to the capital asset.At the time of tax assessment, Assessing officer may ask supporting documents for cost of acquisition/cost of improvement. Therefore, It is advisable to keep all supporting documents in your record to substantiate cost of acquisition/improvement.

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  6. Hello Sir,Cost inflation index for AY 2018-2019 (FY 2017-2018) is not found , can you please check when it will be declared by government. I also have another Question, my LTCG 22Lacs arises after house sale, can I buy House of 50L and pay 20L thru LTCG & 30L thru Home loan to save LTCG TAX.

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  7. Dear Mukesh,Last year CII was notified in first week of June 2016. Hope CII for FY 2017-18 will be notified in last week of May 17 /first week of June17.Capital gains arising from transfer of a residential house property is eligible for exemption u/s 54 of Income tax Act, 1961, if assessee will purchase or construct a residential house (Purchase one year before transfer or within 2 years after the date of transfer/constructed within 3 years of transfer). If the amount of the capital gain (Rs. 22 Lakh) is less than the cost of the new house property(50 Lakh), the entire amount of capital gain will be exempted from tax.Particulars of exemption should be reported in tax return for AY 2018-17(FY 2017-18) for transfer effected in FY 2017-18.

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  8. Hello sirI have a property on my name registered in July 2015. If I sell the property in may 2017, is it considered short term capital gain? If yes only the profit from the selling will be added to my income? And can I invest the profit in some other property and avoid tax?

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  9. We have started paying installments for this property from 2011 itself, but Registration was delayed to 2015 July, is there any chance the property holding is calculated from payment of first installment or only from registration date.the entire dues were completed in 2014.i am a salaried person now falling in slab of 10% of total income

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  10. Hello sir on doing some research I found out the age is calculated based on date of allotment of property and not date of registration, pls confirm if this is right?If yes I can easily claim it as a ltcg since we have allotment letter dating back to 2011 and installments being paid right from 2011.

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  11. Hi Kaviya,Holding period of asset for the purpose of LTCG should be reckoned from date of possession. However in case of allotment of a flat/plot by a housing board(like DDA,HUDA) the period of holding will be determined from date of allotment (not from the date when possession is given or when conveyance deed is signed). Refer case law: Madhu Kaul v. CIT [2014] (Punj & Har.), CIT v. K Ramakrishnan[2014] (Delhi).Recent case law favouring your tax planning Anita. D. Kanjani Vs ACIT (ITAT Mumbai) I.T.A..No.2291/Mum/2015 dated 13/02/2017.If possible, execute the sale deed after completing 24 months from date of possession to be considered LTCG and eligible for 54/54F exemption.

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  12. Thank you sir the date of possession was on 15-03-2013, allotment on 31-03-2011.I have informed the buyer to mention the allotment date and possession date in the sale deed too.Since the buyer is going for a home loan he told bank will provide DD on my name only on the registration date, should i get the DD ahead in time and wait for it to clear then go for registration or is it okay to get the DD and sign the sale deed on the same date.since DD will take 2 days to clear.Can I also mention a point in sale deed about the DD details since it amounts to 95% of the total cost.

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  13. The buyer is only agreeing to mention the DD details as a point, he is not willing to add the point – this sale deed is complete only when the DD is cleared to the bearer.Can I proceed with the DD details alone mentioned in sale deed or convince him to add point about DD clearance.

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  14. Hi Kaviya,DD is a pre-paid Negotiable Instrument and almost cash, so there is no need to mention \”subject to realization/clearance\”. In case of any apprehension that DD might not be encashed, you may proceed with clause in the sale deed that if full sale consideration is not received or the negotiable instrument gets dishonoured for whatever reasons, then the sale deed is null and void, this should protect and safeguard your interest.

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  15. Sir i have building purchased in 2006 and sold in 2017 june.How to calculate cowt of acquisition? ??Cost of acquisition 2006×CII 2018 ———— CII2006.sir my query is As per latest provision base year change from 1981 to 2001.Is is that effect Cii of 2006.I mean my due to this amendments my cost of acquisition is effected of not????

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  16. Sir i have building purchased in 2006 and sold in 2017 june.How to calculate cowt of acquisition? ??Cost of acquisition 2006×CII 2018 ———— CII2006.sir my query is As per latest provision base year change from 1981 to 2001.Is is that effect Cii of 2006.I mean my due to this amendments my cost of acquisition is effected of not????

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  17. Dear Sir,​COI FY 2006-07: 122COI FY 2017-18: 272Now indexed cost of acquisition will be calculated as under:Cost of acquisition*​ COI FY 2017-18(272)/ COI FY 2006-07 (122).In your case cost of acquisition will not be effected, since property acquired after FY 2000-2001

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  18. HELLO BIPUL SIR, I PURCHASED A PROPERTY IN AUG-2014 @ 51.5 LACS. I WANTED YOUR GUIDANCE ON TWO THINGS 1) ITS VALUE AS ON TODAY, IS IT ABOUT 58.3 L (51.5 L X 272 / 240) AS PER CII?2) IF I PLAN TO SELL IT @ 75 L, WILL I BE EXEMPTED FROM CAPITAL GAIN TAX IF I INVEST 16.7 L(75 L – 58.3L) ONLY FROM 75L IN A NEW RESIDENTIAL PROPERTY IN FY 2017-18?

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  19. we paid 25% advance amount for the purchase of flat at Chennai in January 2012 with total estimate of Rs30.80 and the flat was handed over to us in April 2016 we paid Rs31.30 to the builder and the flat was sold for Rs 34.30 and we paid broker commission of Rs64000 for the sale. My annual taxable income is more than Rs 10 lacs what will be my tax liability on the sale of FLAT

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  20. Dear Sir, Since possession of property is April 2016 and you have sold the property thereafter. You have not hold the property for 3 years(If sold before 31 March 2017)/ or 2 Years (Till 10 June 2017) to be considered as Long term asset.Property is short term capital asset and income arising from sale of property is Short Term Capital gain. Short term Capital Gain= Sale consideration Less expenditure incurred wholly and exclusively in connection with sale Less Cost of acquisition less- Cost of improvement.= 3430000(Sale consideration) -64000(Brokerage) -31,30,000(Cost of acqusition)Short term capital gain will be taxed at normal slab rate. Since your taxable income more than 10 Lakh, Short term capital gain taxable @ 30.9%.Your tax liability: Rs.236000*30.9%=Rs. 72,924

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  21. I am unemployed. I have old jewellery walued at Rs 13,00,000/- inherited from my grand parents and great grand parents. If I sell them, how much Capital Gains tax do I have to pay?

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  22. Chandra Balakrishnan4 July 2017 at 04:28I am unemployed. I have old jewellery walued at Rs 13,00,000/- inherited from my grand parents and great grand parents. If I sell them, how much Capital Gains tax do I have to pay?

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  23. Sir,Jewellery is capital asset and sale of Jewellery will attract capital gain tax. Period of holding = Period of holding(You)+ Period of holding (Previous Owner). If it will hold more than 3 years, then asset should be LTCA.If asset held prior to FY 2001-2002, cost of acqusition should be valuation of Jewellery as on 01 April 2001 or cost of acquisition of previous owner(Your Grand Parents/Great grand Parents), whichever is higher.Assuming asset held prior to 2001 by you/your grand parents.Tax liability: (Sale proceeds Less cost of acqusition *272 (COI FY 2017-18, assuming sale in FY 2017-18)/ 100 (COI FY 2001-02)) * 20%Since you have no other income, take minimum slab benefits. You may also take tax exemption u/s 54F & 54 EC of IT Act.

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  24. Dear Sir, i had bought a property in in year 2006-2007, feb 2007 for an amount of 17,00,000/- lakhs. I want to sell it now and i have a few prospectus buyers. My query is what should be the CII Value of my property for this fiscal year. By knowing this i would be able to know the LTCG on this for any over and above amount that i would be prepared to sell. Your Response on the Above issue is higly appreciated.

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  25. I would also like to ask you that apart from the Sale amount, could we also add the Registration fee, Stamp duty, Stamping Fee to the sale amount for the CII value of the property.? as they were expenses on the property. Thanks again for your response.

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  26. I was given 5000 shares @ Rs 200 per share of UTI Asset Management company in Feb'15. I sold these shares in Sep'2017 at Rs 700 per share thereby making a profit of Rs 25,00,000/-. UTI continues to be unlisted. What would be my tax liability for AY 2018-19?

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  27. such a nice info in this blog..Capital Experthas a very experienced Team Expert team who helps you keep your money safe and do it right.We have Highly qualified Experts like Chartered Accountants, Lawyers, Engineers who resolve every impossible question related to you.

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  28. do we need to invest the same money for purchase of another property, or if we use this gain amount for emergent medical necessity ,and invest borrowed funds to purchase property for tax exemption.will thats be workable?

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