Rationalization of provisions of section 55 of the Act to compute cost of acquisition

The existing provisions of section 55 of the Act provide that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in respect of an asset acquired before 1st April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1st April, 2001 or the actual cost of the asset as cost of acquisition.

It is proposed to rationalise the provision and to insert a proviso below sub-clause (ii) of clause (b) of Explanation under clause (ac) of sub-section (2) of the said section to provide that in case of a capital asset, being land or building or both, the fair market value of such an asset on 1st April, 2001 shall not exceed the stamp duty value of such asset as on 1st April, 2001 where such stamp duty value is available. It is also proposed to insert an Explanation so as to provide that for the purposes of sub-clause (i) and (ii), “stamp duty value” shall mean the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.

[Clause 28]

Extract of Relevant Clauses of Finance Bill, 2020

Clause 28

“Clause 28 of the Bill seeks to amend section 55 of the Income-tax Act relating to meaning of “adjusted”, “cost of improvement” and “cost of acquisition”.

The said section, interalia, 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.

It is proposed to insert a proviso to clause (b) of sub-section (2) of the said section so as to provide that in case of a capital asset referred to in sub-clauses (i) and (ii), being land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001. It is further proposed to define the expression “stamp duty value” for the purposes of the said proviso to mean the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.”

Extract of Relevant Amendment Proposed by Finance Bill, 2020

28. Amendment of section 55.

In section 55 of the Income-tax Act, in sub-section (2), in clause (b), after sub-clause (ii), the following shall be inserted with effect from the 1st day of April, 2021, namely:-

‘Provided that in case of a capital asset referred to in sub-clauses (i)and (ii), being land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001.

Explanation.—For the purposes of this proviso, “stamp duty value”means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.’.

Source- Finance Bill 2020 / Union Budget 2020-21

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