Benefit of indexation available for cost of improvement

I want to sell an inherited non agricultural land (converted from agricultural to non agricultural land in 2010) which was transferred in my name in 1993. The date of Deputy Commissioner Order for non agricultural land (residential) is February 15, 2010 and the date of the Record of Right (7/12 utara) is March 27, 2010. Please confirm which date will be considered for the land to be effective. Also, the cost of acquisition of the previous owner is zero and has been acquired before April 1, 1981. For the purpose of long term capital gains, which market value would be considered?

— Aarti M

The response is framed assuming that the agricultural land was situated either in an area within the jurisdiction of a municipality having population of more than 10,000 according to the last preceding census or within 8 km from the local limits of any municipality.

Hence it qualifies as a capital asset prior to its conversion to a NA land. Therefore, the date to be considered for the NA land to be effective is not relevant from the perspective of calculating capital gains under the tax laws in India. The land has been acquired by the assessee under inheritance, accordingly the period of holding, in order to determine whether the asset is a long term/short term capital asset, will be calculated including the holding period of the previous owner.

Since the property was acquired by the previous owner before April 1, 1981, hence the capital asset will be regarded as held by the assessee for a period of more than 36 months, and the gain arising from its transfer would be considered as long term capital gains.

The land was acquired by the previous owner prior to April 1, 1981 and his cost of acquisition was zero; therefore Fair Market Value of the land as on April 1,1981 shall be considered as the cost of acquisition of the assessee. There are authorised Government valuers who can assist in calculating the value. In addition, any expenses incurred by the assessee on conversion of the agricultural land to NA land shall be treated as the cost of improvement for the purposes of calculating long term capital gain. Benefit of indexation will be available for the cost of acquisition and the cost of improvement as the asset qualifies to be a long term capital asset.

(The author is partner, KPMG.)

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