Question 4 OR (a)
Sale of a house below stamp duty value, exemption under section 54, and sale of the new house within three years (as set, 1961 Act, AY 2019-20 and 2020-21)
9 marks
- Time to write
- About 18 minutes
From an older CBCS paper
Question
Question 4 OR (a) · 9 marksOn 28.6.2018 Gurusaran sold a residential house for ₹ 30,00,000. The stamp duty value of this house is ₹ 34,00,000. This house had been purchased by him on 1.10.2005 for ₹ 5,20,000, and he had spent ₹ 2,70,000 on the improvement of it during the year 2006-07. On 21.10.2018 he purchased a new house for ₹ 8,50,000. He also sold this house, on 16.7.2019, for ₹ 10,00,000. On 21.11.2019 he purchased another house for ₹ 8,00,000. For the assessment year 2019-20 and 2020-21, compute the capital gains. (9)
(CII - 2005-06: 117; 2006-07: 122; 2018-19: 280)
Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2019-20 (previous year 2018-19), with the dates as printed.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- computeHead by head: each income under its head, exempt items marked exempt, then the deductions and the tax.
Write it in this order
A step that gives the answer away stays hidden: tap it to see it.
- Read the data; note exactly what is asked 1 min
- 1 Stamp duty value under section 50C with the 105% rule 1½ marks 3 min
- 2 Indexed cost of acquisition and of improvement 2 marks 4 min
- 3 Exemption under section 54 for 2019-20 2 marks 3 min
- 4 Sale of the new house in 2020-21: cost nil, short-term 2½ marks 4 min
- 5 No exemption for the second purchase 1 mark 2 min
- Check: arithmetic, units (₹, %), final answer underlined 1 min
Try it first. About 18 minutes for 9 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
- No transfer expenses are given, and no stamp duty value is given for the sale of 16.7.2019, so that sale is taken at its price of ₹10,00,000.
- Indexed figures are rounded to the nearest rupee.
Assessment year 2019-20: sale of the old house
- Long-term asset. The house was held from 1.10.2005 to 28.6.2018. For land or a building the period is 24 months (proviso to section 2(42A)), so it is a long-term capital asset.
- Full value of consideration (section 50C). Where the stamp duty value of land or a building exceeds the price, the stamp duty value is taken as the full value. For assessment year 2019-20 this is so only if that value is more than 105% of the price (third proviso to section 50C(1), inserted with effect from 1 April 2019 as its footnote shows). 105% of ₹30,00,000 is ₹31,50,000; the stamp duty value of ₹34,00,000 is above it, so ₹34,00,000 is the full value.
- Indexed cost (section 48, Explanation (iii) and (iv)). Cost is indexed from the year of purchase and the improvement from the year it was made.
| Particulars | ₹ |
|---|---|
| Full value of consideration (stamp duty value, section 50C) | 34,00,000 |
| Less: indexed cost of acquisition, ₹5,20,000 × 280/117 | 12,44,444 |
| Less: indexed cost of improvement, ₹2,70,000 × 280/122 | 6,19,672 |
| Long-term capital gain | 15,35,884 |
An individual who transfers a long-term residential house and buys one residential house in India within one year before or two years after the transfer is exempt to the extent of the cost of the new house (section 54(1)). The new house was bought on 21.10.2018, within two years of 28.6.2018, for ₹8,50,000. The capital gain is greater than that cost, so the difference is charged (section 54(1)(i)).
| Particulars | ₹ |
|---|---|
| Long-term capital gain | 15,35,884 |
| Less: exempt under section 54 (cost of the new house) | 8,50,000 |
| Long-term capital gain chargeable, assessment year 2019-20 | 6,85,884 |
For this year the exemption is for one new house only; the option of two houses applies from 1 April 2020, as the footnote to the proviso to section 54(1) shows, so the house bought on 21.11.2019 does not add to the exemption.
Assessment year 2020-21: sale of the new house
- The new house was sold on 16.7.2019, within three years of its purchase. Since the exemption used up its whole cost, its cost for computing the gain on this sale is nil (section 54(1)(i)).
- Held from 21.10.2018 to 16.7.2019, less than 24 months, it is a short-term capital asset (section 2(42A)).
- Section 54 applies only to the transfer of a long-term asset, so buying another house on 21.11.2019 for ₹8,00,000 gives no exemption on this gain.
| Particulars | ₹ |
|---|---|
| Sale price, 16.7.2019 | 10,00,000 |
| Less: cost of the new house, reduced to nil (section 54(1)(i)) | Nil |
| Short-term capital gain chargeable, assessment year 2020-21 | 10,00,000 |
| Assessment year | Capital gain | ₹ |
|---|---|---|
| 2019-20 | Long-term (after section 54) | 6,85,884 |
| 2020-21 | Short-term, on the new house | 10,00,000 |
Where the 9 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Stamp duty value under section 50C with the 105% rule | 1.5 |
| 2 | Indexed cost of acquisition and of improvement | 2 |
| 3 | Exemption under section 54 for 2019-20 | 2 |
| 4 | Sale of the new house in 2020-21: cost nil, short-term | 2.5 |
| 5 | No exemption for the second purchase | 1 |
| Total | 9 |
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