In 1971, my grandfather constructed a home on a plot bought by him. In 2015, my father demolished it and constructed a brand new home from his personal funds and in 2016 my grandfather gifted the identical home to me. How do I calculate the indexation if I had been to promote the home?
— Surat Singh
We assume that the brand new home (constructed by your father in 2015) continued to be within the identify of your grandfather earlier than being gifted to you in 2016. We have additionally assumed that the demolition of outdated home and building of the brand new home was carried by your father together with his funds, with none authorized rights within the new home being assigned to him.
In such a case, one may argue that the brand new home was deemed as gifted by your father to your grandfather. It can be assumed that you’ll promote your entire property (together with the plot of land on which the identical is constructed).
Since, in your case, the plot of land was acquired in 1971 and a brand new home was constructed on the identical plot of land in 2015, the listed value of acquisition could also be computed individually in respect of plot and the brand new home offered, as per provisions of the earnings tax (I-T) Act.
On a mixed studying of Section 49 and Section 55 of the Act, the price of acquisition of the plot in your arms can be the price of acquisition in your grandfather (i.e. value at which he acquired the plot and constructed the property in 1971 or the FMV (not exceeding the stamp obligation worth) as on 1 April 2001, whichever is greater).
Since the plot was held for greater than two years, you’re eligible for the advantage of indexation and the listed value of plot can be calculated by making use of the next method:
Indexed value of acquisition = value of acquisition multiplied by the price inflation index (CII) of the 12 months by which asset is offered, divided by CII for the 12 months by which plot was first held by earlier proprietor or FY 2001-02 (whichever is later) i.e. FY 2001-02 in your case.
In relation to the price of acquisition of the brand new home constructed by your father in 2015, if it may be substantiated that the identical was gifted by your father to your grandfather after which by your grandfather to you, the price of building incurred by your father for the brand new home in 2015, could also be thought-about as value of acquisition in your arms for the brand new home.
As the interval of holding of the brand new home constructed in 2015 is greater than two years, the acquire on sale of the brand new home in your arms can be LTCG and you’re eligible for the advantage of indexation and listed value of home can be calculated by making use of the next method: Indexed value of acquisition = value of acquisition multiplied by CII of the 12 months by which asset is offered, divided by CII for the 12 months by which new home was first held by earlier proprietor, i.e., FY 2014-15/ 2015-16 because the case could also be.
Any deduction in the direction of the unique value of building incurred by your grandfather in 1971 or value of demolition of the outdated home property could also be extremely litigious and will have to be evaluated additional. It can be vital to evaluation the precise association and paperwork executed for the said transactions to conclusively touch upon the identical.
Parizad Sirwalla is accomplice and head, world mobility providers, tax, KPMG in India.
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