Long-term capital gains on a house, silver, diamonds and debentures, with sections 50C and 54EC (as set, 1961 Act, AY 2018-19)

Assumptions

1. Mr. Anand is an individual; the stamp duty value of the house was the value on the date of transfer and he does not dispute it.
2. The silver's transfer expenses, which the question prints as 10,00, are read as ₹1,000 (the same digits with the comma misplaced). The other reading is at the end.
3. The Cost Inflation Index for 2001-02, the first year of the series, is 100 (not printed in the question) (CBDT Notification No. 44/2017 of 5 June 2017 (S.O. 1790(E)), which applies from assessment year 2018-19 and also gives 105 for 2002-03, 240 for 2014-15 and 272 for 2017-18).
4. The debentures are ordinary debentures, not capital indexed bonds of the Government or Sovereign Gold Bonds.
5. The NHAI and REC bonds are bonds redeemable after three years, issued in 2017-18 by the National Highways Authority of India and the Rural Electrification Corporation, as section 54EC requires (Explanation (ba)(i)).

Nature of the gains

Every asset was held for far more than 36 months before its transfer, so each is a long-term capital asset (section 2(42A)), and the gain is computed after deducting the indexed cost of acquisition and of improvement (section 48, second proviso), except for the debentures (note 3). The year of transfer is 2017-18 (index 272).

House property

• Cost of acquisition. The house was acquired before 1st April, 2001, so its cost is, at his option, its cost (₹6,00,000) or its fair market value on that date (₹5,90,000) (section 55(2)(b)(i)); he takes the higher, the cost. It is indexed from 2001-02, the later of the year of acquisition and 2001-02 (section 48, Explanation (iii)).
• Improvements. For an asset acquired before 1st April, 2001, only improvements made on or after that date count (section 55(1)(b)(2)(i)). The 1st floor, built in 1999-2000, is therefore ignored; the 2nd floor is indexed from 2014-15 (section 48, Explanation (iv)).
• Section 54EC. The NHAI bonds were bought within six months after the transfer on 29th April, 2017, and cost less than the gain, so ₹15,00,000 of the gain is exempt (section 54EC(1)(b)). It is within both limits in the provisos to section 54EC(1): ₹50 lakh invested in such bonds in any financial year, and ₹50 lakh in all invested from gains of the financial year in which the original asset is transferred and the next financial year. The REC bonds were bought on 3rd April, 2017, before the house was transferred; the section allows only an investment made within six months after the transfer, so they give no exemption.

Silver

Bought in March 1999, before 1st April, 2001: the fair market value on that date (₹60,000) is higher than the cost (₹50,000), so he opts for it (section 55(2)(b)(i)).

Diamond

Bought on 1st June, 2002 (year 2002-03, index 105), after 1st April, 2001, so only the actual cost counts; the fair market value on 1st April, 2001 is not relevant.

Debentures

Capital gains chargeable for assessment year 2018-19

Notes

1. Section 50C applies because the stamp duty value (₹46,50,000) is more than the consideration (₹46,00,000). The proviso that ignores a stamp duty value within 105% of the consideration was inserted only with effect from 1 April 2019 (footnote to section 50C(1)), so it does not help for assessment year 2018-19.
2. The base year of 1st April, 2001 in sections 48 and 55 applies from assessment year 2018-19 (footnotes to section 48, Explanation (iii), and section 55(1)(b)), which is why the 1999-2000 improvement and the old costs give way to the 2001 values.
3. Indexation does not apply to the long-term gain on a bond or debenture other than capital indexed bonds of the Government and Sovereign Gold Bonds (section 48, proviso on bonds and debentures, substituted with effect from 1 April 2017). The index for 2005-06 given in the question is therefore not used.
4. Section 54EC at this time covered the gain on any long-term capital asset; it was confined to land or buildings only from 1 April 2019 (footnote to section 54EC(1)). The NHAI bonds are set against the house, whose gain they were bought out of.

If the facts assumed are otherwise

• If the silver's transfer expenses are ₹10,000, its gain is ₹6,76,800 and the total ₹41,86,938.
• If the debentures were indexed with the printed index for 2005-06 (₹6,50,000 × 272 / 117 = ₹15,11,111), their gain would be ₹5,87,889 and the total ₹33,34,827; the proviso in note 3 rules this out.