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TMI BlogBudget 2017- Capital gainsX X X X Extracts X X X X X X X X Extracts X X X X ..... Budget 2017- Capital gains - By: - CA DEV KUMAR KOTHARI - Budget - Dated:- 14-2-2017 - - Budget 2017- Capital gains: Cut-off date for option to take fair market value as on 01.04.2001 FMV as on 01.04.2011 would be better. Option to consider fair market value general discussion: The subject matter is very well known and a popular provision. A person who has sold a long-term capital asset which was acquired before cut-off date has an option to substitute fair market value of such asset as on cut-off date and then apply applicable cost inflation index applicable to year of cut-off date and year of transfer of capital asset. When fair market value is opted, then cost of improvement incurred only after such date is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with benefit of indexation. Option in for assessee: Option to take fair market value is obviously adopted when fair market value is higher than the actual cost and cost of improvement till the cut-off date. If fair market value is lower than actual total cost, then actual total cost is adopted for computation of allowable total indexed cost. This situation may not be applicable in case of laded properties, however, in case of many assets like shares actual cost may be higher than fair market value as on cut off date. So one should be careful while deciding whether to opt for fair market value or not. Furthermore, for each capital asset, acquired before cut-off date, assessee has option separately for each capital asset or lot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each capital asset, so care shuld be taken to compare actual cost of acquisition and fair market value for each capital asset according to date of acquisition cost of acquisition, indexed cost of acquisition vis a vis indexed fair market value. Cut- off dates: In past cut-off dates for these purpose have been 01.04.1954 ,01.04.1964, 01.04.1974 and then 01.04.1981. Now in Finance Bill 2017 it is proposed to substitute such date to 01.04.2001. The earlier amendment was made vide Finance Act, 1992 w.e.f.01.04.1993 when cut-off date was revised from 01.04.1974 to 01.04.1981. We find time lag between cut-off dates of 10 years for three dates and then seven years. Whereas last amendment was made to provide cut-off date (01.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1981) which was 12 years back from the initial revised assessment year 1993-94. Now date is proposed to be revised to 01.04.2001 that is having long twenty years gap. The first assessment year will be 2018-19 therefore the time gap in initial year and cut-off date is of eighteen years. Though amendment is very late, but when it is being made, practical and liberal approach could have been adopted by the Finance Minister and cut-off date could have been revised to 01.04.2011 instead of 01.04.2001. Proposed amendment in this regard are reproduced with highlights added: Amendment of section 48 . 24 . In section 48 of the Income-tax Act, with effect from the 1st day of April, 2018,- (a)xxx (b) in the Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, 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. Notes on Clauses: Clause 24 of the Bill seeks to amend section 48 of the Income-tax Act relating to mode of computation. Further, under the existing provisions of the said section, indexed cost of acquisition is defined to be an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later. It is also proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make consequential amendments to the said section so as to replace the reference of 1st day of April, 1981 with the 1st day of April, 2001. These amendments will take effect from 1st April, 2018 and will, accordingly, apply to the assessment year 2018- 2019 and subsequent years. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occur, the figures, letters and words 1st day of April, 2001 shall be substituted. Notes on Clauses: 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 . Under the existing provisions of the said section, the cost of long-term capital asset acquired before the 1st day of April, 1981 is taken to be the cost of acquisition to the assessee or the fair market value of the asset on that date, at the option of the assessee. The cost of improvement is also taken into account after the assessee has acquired the asset on or after 1st April, 1981. It is proposed to amend the said section so as to advance the aforesaid cut-off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date to 1st day of April, 2001. Where the long-term capital asset has been acquired before the 1st day of April, 2001 , then, the cost of acquisition will be taken to be the value of the asset as on the 1st day of April, 2001. Similarly, in such cases the cost of improvement will be taken to be the cost of improvement after this date. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent years. Request to honourable Finance Minister: Keeping in mind past history, and high inflation we had faced, the revision of cut-off date is very much belated. It should have taken place as 01.04.1991, 01.04.2001 and now as 01.04.2011. Author request ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider the suggestion. - Reply By Ganeshan Kalyani as = Nice article Sir. Thanks for sharing. Dated: 17-2-2017 Reply By swaminathan venkataraman as = To be precise, in one's understanding, the asset value as on 1st April 2001 , or as on any later date, for and up to the previous year ending 31-3-2007, requiring to be indexed in accordance with the last Notified Table, shall have to be taken at the so indexed cost . If so, the question of embarking on any fresh or separate exercise for ascertaining the asset value does not arise. Any contrary view will be tantamount to rewriting the entire scheme of the extant law, with a retrospective consequence, Sooner the matter is clarified by the Revenue, better; so as to avoid any f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther muddling up of the obtaining scenario. For a dilation, anyone may care to and look through the related recent Posts on Facebook and Linkedin, besides elsewhere on other websites . Dated: 19-2-2017 Reply By DEV KUMAR KOTHARI as = Shri swaminathan venkataraman , KIndly elaborate your observation for better understanding and clarity about your views. Dated: 19-2-2017 Reply By swaminathan venkataraman as = In deference to the request, and by way of a quick response, but out of sheer compassion, choose to attempt and throw more light, to the best of personal ability /capability: As regards the historical changes narrated in the write-up, the last change, as said, was made in 1992. For a better understanding thereof, refer the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rite-up @ http://www.charteredclub.com/cost-inflation-index/ ; also, http://www.incometaxindia.gov.in/Budgets%20and%20Bills/1992/107010000000353211.pdf - the Explanation of contextual relevance herein, may be found under the paragraph titled, - Restructuring Capital Gains Taxation . As may be noted there from, the concept of indexation for inflation and the yearly index were brought in, and came in vogue, beginning with 1981-82 as the base year. Accordingly for and from that year, onward, Index for the purpose may be seen to have been prescribed ; and, as of now, for and upto the year 2017-18. To pinpoint: It was in the foregoing circumstances that , for obvious reasons, for the base year 1981- 82 it was provided : - the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of long-term capital asset acquired before the 1st day of April, 1981 is taken to be THE COST OF ACQUISITION TO THE ASSESSEE OR THE FAIR MARKET VALUE OF THE ASSET ON THAT DATE, AT THE OPTION OF THE ASSESSEE. As regards the change of base year as proposed in the 2017 Budget, however, it is differently provided: THE COST OF ACQUISITION WILL BE TAKEN TO BE THE VALUE OF THE ASSET AS ON THE 1ST DAY OF APRIL, 2001 (FONT supplied for special noting) What calls for a special attention is that, contrary to the view shared in certain limited quarters,- in my firm opinion and conviction impudently so, the 2017 proposal does not warrant a fresh exercise as was required in 1981. Now , the only point for consideration is what is to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken as THE VALUE OF THE ASSET AS ON THE 1ST DAY OF APRIL, 2001 Now, am sure, none may have any difficulty in understanding or appreciating my viewpoints as shared; provided , of course, he is one duly equipped, and cares to make a mindful study and draw his own conclusion after due home work. The other alternative for pursuing any further, for personal enlightenment, is to deliberate and discuss with friends and co-members of the fraternity, particularly in active field practice hence may be better competent; for which purpose an invitation to the ICAI has been extended through Linkedin. Dated: 19-2-2017 Reply By swaminathan venkataraman as = With a view to saving self from sparing anymore time and effort in explaining my per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonal viewpoints, recommend that the Posts in public domain, mainly on Facebook and Linkedin , may kindly be looked-up . Dated: 19-2-2017 Reply By swaminathan venkataraman as = Rider (by way of clarifying own line of thoughts /reasoning) : For any further independent study/examination , as suggested,- of the intended purpose, if any, behind the subject proposed changes, - it might be of contextual relevance to keep in focus also the amendment of the Explanation (v) under section 49 made by the Finance (No.2) Act 2014 , w.e.f. 1-4-2016. As understood for the nonce, albeit not sure, in notifying the CII for the fiscal year 2016-17, that has been reckoned wrt the new factor of Consumer Price Index (urban) as substituted / envisag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the said amendment. That, of course, needs to be gone into , in any case, separately, for examining its effect /implications.. Dated: 20-2-2017 Reply By swaminathan venkataraman as = An UPDATE: A recent look through some of the write-ups on display over the websites go to show that , by and large, there is still a grave doubt about the implications of the amended law. To be precise, the point of doubt is as to which of the two Indexation Tables to apply, for computing capital gains in respect of an asset 'acquired' before the cut-off year- i.e. 2001-02, transfer of which is effected in FY 2017-18, or in a later year. In this context, it calls for a special mention, had transfer of the same asset been effected in the imme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diately preceding FY 2016-17, no such doubt could have arisen. There is no knowing what view has been/ is being taken, by taxpayers and advising professionals, for paying Advance tax in the current year. And, so far as known, no firm view has been taken and shared in legal circles, or no clarity has been offered/ forthcoming from any quarters(either Revenue or supposed to be knowledgeably professional bodies- e.g. ICAI). As such, in the absence of any clarity, there is the risk of mutually contradicting views being taken in the tax return, so also in the assessment, appeal and further proceedings. In the result, disputes and litigation might become inevitable; and issues would remain inconclusively resolved. Keeping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foregoing in focus, in order to avert the indicated unsavory consequences, it is imperative that,- (a) the professional bodies such as, ICAI should come out, and equip its members, with clear-cut proper guidance in the matter, on a timely basis;and the CBDT, on its part,require to take the initiative, even now,and do likewise; sooner the better. Dated: 9-1-2018 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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