I am a female senior citizen. I bought a commercial apartment of 248 sq ft in May 1994 from the first owner in a DDA leasehold constructed commercial building. ₹2.2 lakhs. Now, I intend to sell it at the expected price ₹25 lakhs. While doing so, I expect a brokerage fee of 2%, DDA transfer fee ₹5 per sq. ft. and possible transfer endorsement charges @ 5% of the sale deed by the builder for second transfer. What will be the valuation of the property as on 1st April 2001 (as required for property purchased before 2001) and thereafter what will be its valuation in FY22 as per the current indexation table? What would be the cost of investing in a 54EC bond for the acquisition of the asset and the subsequent calculation of capital gains and potential tax or tax avoidance?
-Urmila K.
It is assumed that you own the commercial property, and it has not been acquired by you under a lease arrangement. Since the immovable property was held by you for more than 24 months, the property will be treated as long-term capital asset and long-term capital gain or loss on profit/loss (LTCG/L) from the sale.
LTCG/L is calculated as the difference between the net sales return (actual sales return minus brokerage and incidental selling expenses) and the indexed cost of acquisitions and improvements.
Where a capital asset is purchased before 1st April 2001 (i.e. in May 1994), the cost of such asset may be substituted with the fair market value (FMV) of the asset for the purpose of computing LTCG/L on sale, As on 1st April 2001, at the option of the assessee. Therefore you can get the capital asset valued as on 1st April 2001 and use such FMV or Actual Purchase Cost at your discretion. While there is no explicit requirement to obtain an FMV certificate, from the point of view of documentation one should consider obtaining such a certificate from a registered valuer. It is to be noted that, as per the Finance Act 2020, such FMV cannot exceed the stamp duty value as on that date.
The indexed cost of acquisition of commercial property shall be calculated as follows:
cost of acquisition (ie ₹2.2 lakh) or FMV as on April 1, 2001 (at your option) / Cost Inflation Index (CII) of FY 02 (ie 100) x CII of the year of sale (CII fixed for FY 22 is 317). 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 LTCG/L shall be treated as the sale consideration.
Tax on the resultant LTCG is payable at 20% (plus applicable surcharges and cess).
Rollover exemption of resulting LTCG, if any, on sale of commercial property (other than residential house), subject to the prescribed conditions and time limits, is available for the following investments: Sale by investing LTCG in specified, under section 54EC of the Act bond notified within six months from the date of; By investing the net consideration in a new residential house situated in India, under section 54F of the Act.
Accordingly, in the instant case, you may choose to invest LTCG, if any, in notified bonds in the prescribed manner and claim exemption for LTCG, if any.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.
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