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How are capital gains on property calculated?

I purchased a commercial property in 1999, paid the full amount and earned rent on it. The registration of the property was done in 2011. I sold the property this year. To calculate capital gains, for which year should the cost of acquisition be indexed—2001 or 2011?

—Name withheld on request

As per the facts provided, it is understood that full payment towards purchase of the said commercial property was made and possession was also received in 1999. Only the registration of the property was completed in 2011.

There is considerable debate on the date that should be considered as date of acquisition of a property, where date of registration is different than date of possession/completion of payment. There are divergent judicial precedents, depending upon the facts of the case and the underlying documentation.

The general prevalent view is that the date of acquisition should be the date on which an unfettered right in the property has been received by the purchaser.

In the instant case, as it appears that both the payment and possession have been duly completed in 1999, the same may be considered as the year of acquisition of the purpose of calculation of capital gains. However, considering the divergent views, litigation in such a case cannot be ruled out and would need a thorough evaluation of the underlying documents/ agreements/ terms.

Considering the period of holding of the property is more than two years, any gain / loss arising from transfer of the same, shall be taxable as long-term capital gain or loss. Where date of acquisition of is considered as 1999, then either fair market value of the property as on 1 April 2001 or actual cost of acquisition, at your option, may be considered as cost of acquisition of the property and indexation should also be considered accordingly.

I have taken voluntary retirement from the railways and also transferred 50% of my total retirement corpus to my wife’s bank account and parked it there as a fixed deposit (FD). I would like to know who is liable to pay tax on interest income earned on this FD?

-Brijesh Aggarwal

As per the provisions of the Income-tax Act, 1961 , any sum of money gifted by you to your wife will not constitute taxable income in her hands. Further, in light of the clubbing provisions of the Act, any income arising to your wife from the money gifted shall be taxable in your hands.

Accordingly, interest income earned directly from fixed deposits in the name of your wife out of the funds gifted by you, shall be clubbed with your income and taxable in your hands.

Based on certain judicial precedents, there may be a view thar any further reinvestment of the interest income from these fixed deposits by your wife should, however, not be included in your income and should be taxed in her hands.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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Updated: 19 Nov 2023, 11:01 PM IST

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