If you are planning to sell an immovable property originally acquired before April 1, 2001, you may be better off if you sell the property on or before March 31, 2020.
Budget 2020 introduced a new provision restricting fair market value as on 1/4/2001 to the stamp duty value for calculating cost of acquisition of an immovable property.
Currently, cost of any immovable property acquired before April 1, 2001 is calculated as the Fair Market Value (FMV) as on 1-4-2001 or actual cost at the option of the tax payer.
Also, the registered valuers have been giving valuation report that is significantly higher than the acquisition cost or stamp duty value using complex formula or justification as per property owner’s requirement to save capital gain tax. To restrict such practice, Budget 2020 introduced the cap on FMV as now, it cannot exceed the Stamp Duty Value as on April 1, 2001.
This could significantly affect the long term capital gain tax as explained in the following table:
|
|
FY 2019-20 (Option A) |
FY 2019-20 (Option B) |
FY 2020-21 |
| Selling Price |
50,000,000 |
50,000,000 |
50,000,000 |
| Purchase Price on 1/4/1985 |
500,000 |
500,000 |
500,000 |
| Stamp Duty Value |
1,500,000 |
1,500,000 |
1,500,000 |
| FMV as on 1/4/01 |
3,000,000 |
7,500,000 |
3,000,000 |
| COST of Acquisition |
3,000,000 |
7,500,000 |
1,500,000 |
| Index |
289 |
289 |
298 (assume) |
| Indexed Cost |
8,670,000 |
21,675,000 |
4,470,000 |
| Capital Gain |
41,330,000 |
28,325,000 |
45,530,000 |
| Tax @26% (20% + 5% surcharge + 1% cess) |
10,745,800 |
7,364,500 |
11,837,800 |
| Additional Tax to Pay |
3,381,300 |
0 |
4,473,300 |
The tax effect on high value transactions could be extremely high where there is significant difference between FMV and Stamp Duty Value.
The proposal is effective from April 1, 2020. As a result, anyone sitting on a sideline or have a deal that is closer to be completed should follow up urgently to make the deal and register the transaction on or before March 31, 2020. It may be worth for NRIs or PIOs to specially make a trip and sell the property before March 31, 2020 to save the tax.
However, where the property was acquired after April 1, 2001 or where the stamp duty value is higher than the fair market value, there won’t be any difference as the proposal would not apply.
