Shifting base year from 1981 to 2001 for computation of capital gains

The existing provisions of section 55 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 01 .04.1981, the assessee has been allowed an option of either to take the fair market value of the asset as on 01 .04.1981 or the actual cost of the asset as cost of acquisition. The assessee is also allowed to claim deduction for cost of improvement incurred after 01 .04.1981, if any.

As the base year for computation of capital gains has become more than three decades old, assessees are facing genuine difficulties in computing the capital gains in respect of a capital asset, especially immovable property acquired before 01 .04.1981 due to non-availability of relevant information for computation of fair market value of such asset as on 01 .04.1981.

In order to revise the base year for computation of capital gains, it is proposed to amend section 55 of the Act so as to provide that the cost of acquisition of an asset acquired before 01.04.2001 shall be allowed to be taken as fair market value as on 1st April, 2001 and the cost of improvement shall include only those capital expenses which are incurred after 01.04.2001.

Consequential amendment is also proposed in section 48 so as to align the provisions relating to cost inflation index to the proposed base year.

These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

[Clauses 28 & 24]

Extract of relevant clause from Finance Bill, 2017

Amendment of section 55.

28. In section 55 of the Income-tax Act, with effect from the 1st day of April, 2018,—

(A) in sub-section (1), in clause (b), in sub-clause (2), in item (i), for the figures, letters and words “1st day of April, 1981”, the figures, letters and words “1st day of April, 2001” shall be substituted;

(B) in sub-section (2), in clause (b), for the figures, letters and words “1st day of April, 1981” wherever they occur, the figures, letters and words “1st day of April, 2001” shall be substituted.

Amendment of section 48.

24. In section 48 of the Income-tax Act, with effect from the 1st day of April, 2018,—

(a) in the fifth proviso, for the word “subscribed”, the word “held” shall be substituted;

(b) in the Explanation, in clause (iii), for the figures, letters and words “1st day of April, 1981”, the figures, letters and words “1st day of April, 2001” shall be substituted.

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6 Comments

  1. Chaitanya Pandit says:

    Purchased flat in Oct. 1988 for Rs.2.06 Lacs & sold in Feb. 2021 for Rs.101.00 lac. What will be Capital gain considering change in base year to 2001.

  2. Anil N Bobade says:

    Iइयर acquired a residential plot at Rs 5000/ in finacial year 1987-88, and sold out at Rs 20 Lakh in the financial year 2020- 21(I.e. in the month of September 2020, Then how much will be Long term capital gain & how much will be Income tax,i wii have to pay

  3. Anil Bobade says:

    A PLOT is acquired at the year 1988 at Rs 5000/- and sale in financial year 2020-21,
    Then how much will be Long Term Capital gain .and Income tax over it, i have to pay

  4. Ajay Shankarrao Nalhe says:

    Plot in1982 bought for 2250
    Sold in Nov 2019 at rs 10 lakh to brother
    But its ready reckoner price is 45 lakh.
    What is tax for this?

  5. hkarora says:

    i hv a query.does cost of improvement include cost incurred to keep away encroachers of vacant plot like building compound wall hut for chowkidar wages of chowkidar etc

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