MOFA - INDEXED COST DEMYSTIFYED {Source Times Of India}
This is an excerpt from Times of India - Which may be helpful for Flat Buyers and Sellers.
Lalita Prabhakaran wants to know whether on sale of a flat acquired by her on
inheritance, the cost for the purposes of capital gain will be the indexed cost
and if so, how will it be indexed? ADVOCATE KK RAMANI responds:
The capital gain on transfer of a property is the difference between the sale
consideration and the cost of acquisition thereof. The cost of acquisition is
permitted to be indexed on the basis of cost inflation index notified by the
government from time to time. In this case no cost was incurred by her as the
flat was acquired by inheritance. In such a case the cost incurred by the
previous owner is taken to be the cost to her which, is indexed up to the year
of sale.
In case, however, if the previous owner acquired it before 1981, the law
permits its market value as on 01-04-1981 to be the cost to the previous owner.
In case she inherited the property after this date the question arises as to
whether indexation needs to be done from 01-04-1981 or from the date of
inheritance by her. In Dy. Commissioner of Income-tax, Circle-3(4) V. Kishore
Kanungo 102 ITD 4347 a view was taken by Mumbai Bench of ITAT that indexation
can be done only from the date of inheritance i.e. when she actually acquired
it. The view was subsequently revised by the Special Bench in DCIT vs. Manjula
J. Shah 318 ITR (AT) 417 and it has been held that indexation will be from the
date the previous owner acquired it or from 1/4/1981, whichever is later. On
the assumption that the previous owners acquired the Property before 1981, the cost of acquisition in her case will be the market
value as on 01-04-1981 which will be indexed from 1981 upto the year of sale.
It may be mentioned that the cost inflation index with 1981 as the base i.e.
100 is 785 for the F.Y. 2011-12.
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