Date : 1st Nov 2020

Question as emailed to us on 24th Oct 2020 by Safique Sardar (safique.sardar@gmail.com)

Hello Sir,
 
I need a tax planning and analysis for a property situated in Kolkata.
Little background of the property:
We do have a piece and parcel of land measuring about 06 cottah, which belong to us and was enjoyed
and possessed by us since more than 38 years (which is evident from KMC Tax Bill), but is was since
then not registered in our name, now presently we want to do the registration of the said property and the
original owner from whom we have got the piece of land also wants to respect their promise, has agreed
to do the registration.

Here the vendor/seller having concern only with the tax liability (Long term Capital gain), on a good faith
and relation he wants the sale consideration amount only to pay off the Tax Liability on his part and not to
make any profit out of the sale consideration, (means we would be assuming his his Tax liability or tax on
capital gain will be the  sale consideration for us).
So we need Tax Planning and Analysis and what would be the Tax Liability for both the parties i.e., for
vendor/seller and purchaser.
Details of the Property :-
       The Property is situated within the range of Kolkata Municipal Corporation having Assessee
No. 210660400710.
 
       After consultation with you we have appoint Registered land Valuer and as per the registered
Land Valuer the stamp duty value (SDV) or fair market value (FMV) of the property
is Rs.24708845.00 (Rupees: Two Crores Forty Seven Lakhs Eight Thousand Eight Hundred and
Forty Five) only, as on 06th October 2020.
 
       As per the registered Land Valuer the Fair Value of the property as on 01st January
2001 is Rs.62,61,000. (Rupees: Sixty Two lakh and Sixty One Thousand) only.
 
       We are assuming the sale consideration amount as Rs: 20,00,000/-(Rupees: Twenty Lakh
only).

So It would be great help if you kindly analyse the Tax Liability for seller and purchaser.
Please also find the attached copy of:
 
1)    KMC Tax Bill
2)    Valuation of the property as on 06th October 2020.
3)    Valuation of the property as on 01st April 2001.
 
Thanks & Regards,

Safique Sardar
MD ASIF & ASSOCIATES 6, Tiljala Lane,4th Floor,

Chartered Accountants Kolkata 700039

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Our RESPONSE towards the Question raised

Dear Mr Safique,

We have gone through your Question soughting details of Tax liability based on the details given there. Sales and
Purchase cost are decided based on mutual agreement between both the party. So we can’t say anything on the Sale
and Purchase Value, decided or to be decided by you. Below Note is prepared based on rules and procedures given in
Income tax Act, Due care has been taken in making this calculation error free. However, Receiver of this information
are requested to verify the information from relevant source and experts before taking any decision on purchase or
sale and also notify if prima facie error is noted.

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SELLER’S Taxability
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Elements of Cost that are proposed to be Deducted from Sales Consideration

1) Expenses Incurred during Sale or Transfer : Any amount the payment of which is absolutely necessary to
effect the transfer will be an expenditure covered by this clause
Examples :
 Brokerage or commission paid for securing a Purchaser,
 Cost of stamp duty,
 Registration fees borne by the vendor,
 Travelling expenses incurred in connection with transfer,
 Litigation expenditure for claiming enhancement of compensation awarded in the case of
compulsory acquisition of assets.

In the present case

Expenses Incurred during Sale or Transfer : Nil ( Due to Lack of Information available now)

2) Cost of Improvement : It is the capital expenditure incurred by an assessee for making any addition or
improvement in the capital asset. It also includes any expenditure incurred in protecting or curing the
title. It is subject to Indexation.

In the present case

Cost of Improvement : Nil ( Due to Lack of Information available now)

3) Cost of Acquisition : Cost of Acquisition (COA) means any capital expense at the time of acquiring
capital asset under transfer, i.e., to include the purchase price, expenses incurred up to acquiring date in
the form of registration, storage etc. expenses incurred on completing transfer.

Since Section 55 of Income tax Act provides that the cost of long-term capital asset acquired before the
1st day of April, 2001 is taken to be the cost of acquisition to the assesse or the fair market value of the
asset on that date, at the option of the assessee.
MD ASIF & ASSOCIATES 6, Tiljala Lane,4th Floor,

Chartered Accountants Kolkata 700039

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In the present case, Assets proposed to be sold is acquired before 1 st April 2001 and the value is not
known, Hence the FMV of Land as on 2001 will be taken into consideration.

In the present case

Cost of Acquisition :
FMV of Land as on 1.4.2001 : 62,61,000/- (as per Valuation report)
Proposed Year of Sale : 2020-21
Cost Inflation Index of
2001-02 : 100
2020-21 : 301

Indexed Cost of Acquisition : 62,61,000 x 301 = 1,88,45,610 /-

100

SALES CONSIDERATION : If the Value of the Property being sold i.e Declared Value > Stamp duty value then
the Declared Value will be considered final Sale value for Capital Gain and Capital gain will be computed
Accordingly.

If the Declared Value in Deed/Agreement is < Stamp Duty Value (SDV) then as per Section 50C Stamp Duty
value (SDV) = Sale Consideration for Capital Gains under Section 48

In the present case

Sales Consideration as per Agreement : 20,00,000 /-
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Estimated Stamp Duty Value as per Valuation
report by Valuer as per Sec 50C : 2,47,08,845/-
Less : Expenses incurred during Sale or Transfer Nil .
Sales Consideration : 2,47,08,845 /-
Less : Indexed Cost of Acquisition 1,88,45,610
Indexed Cost of Improvement Nil . 1,88,45,610 /-
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Long Term Capital Gain : 58,63,235 /-
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So Long Term Capital Gain for Seller would be : 58,63,235 /-

Taxability of Long Term Capital Gain

Long Term Capital Gain 58,63,235/-
Tax @ 20% 11,72,647 /-
Surcharge @ 10% on Tax 1,17,265/-
Health & Edu Cess @ 4% on Tax & Surcharge On tax 51,596/-
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Tax including Sur & Cess 13,41,508/-

Tax with Surcharge and Cess (Rounded off) 13,41,510/-

MD ASIF & ASSOCIATES 6, Tiljala Lane,4th Floor,

Chartered Accountants Kolkata 700039

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*Surcharge @ 10% is applicable if Income exceed 50 lacs rupees

Exemption from Tax
Seller’s may avail tax exemption from Long Term Capital Gain of 13.42 lacs as above, if he invest the Capital
gain i.e 58.63 lacs as per Section 54 (as specified in my previous note)

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Buyer’s Taxability
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BUYER’S TAX IMPLICATION

Acquistion Cost as per Agreement : 20,00,000 /-

Cost of Stamp duty and Registration fees (8% app) :

Estimated Stamp Duty Value as per Valuation

report by Valuer as per Sec 50C : 2,47,08,845/-
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Income from Other Sources u/s 56(2)x
(Difference of SDV over Acquired cost) : 2,27,08,845/-
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Income Tax

Taxable Income (Rounded off) : 2,27,08,850 /-

Tax @ 30% : 6812654/-
Surcharge @ 25% of Tax : 1703163/-
Educess @ 4% : 340633/-
8856450/-
*Surcharge @ 25% is applicable if Income exceed 2 Crore rupees
Tax with Surcharge and Cess (Rounded off) 88,56,450 /-

Disclaimer : The above Note is prepared based on analysis and investigation of relevant Acts and articles, we
have tried utmost effort in making this Note error free. However, Receiver of this information are requested
to verify the information from relevant source and experts before taking any decision on purchase or sale.

For MD ASIF & ASSOCIATES

Chartered Accountants

CA Sheikh Muhammad Asif Ali

(Proprietor)
B.Com (H) ,CA, CS,CMA(Int), NCFM
M.No. 310595, FRN : 329625E