Change in the base year from 1981 to 2001 is for all classes of assets

TAX TALK-02.10..2017-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant

The change in the base year from 1981 to 2001 is for all classes of assets be it real estate, unlisted shares, gold and bond funds).  As a result of this amendment, the cost of all the assets acquired prior to 01.04.2001 would be replaced by the fair market value of the assets as on 01.04.2001.

Change in the base year from 1981 to 2001 is for all classes of assets

Query 1]

I am senior citizen. My present means of livelihood is my pension and bank FD interest. It amounts to around rupees six and half lakh. In the present FY, the tax for income till five lakhs is 5% and above that is 20%. Most of my income falls into the 5% tax bracket the bank however cuts TDS at 10%. I will get refund no doubt but why should people like me or others who earn five lakhs a year suffer an excess tax deduction and loss of monthly income till the month of refund. Please advice whom to approach? [ashutoshgadgil@yahoo.com]

Opinion:

There is no such thing as a good tax- Winston Churchill

As your ultimate tax liability is not nil, you cannot submit Form No. 15H. There is no other way to avoid TDS except getting lower deduction certificate from Assessing Officer after making an application in Form No. 13 with income details incorporated therein. AO can issue lower deduction certificate authorizing bank to deduct tax at lower rate. Alternatively, you can claim the excess TDS by filing income tax return.

Query 2]

With reference to Tax Talk in The Hitavada Dated 11/10/2016 regarding senior citizen saving scheme 2004, it is mentioned that premature withdrawal of the amount will be taxable. I have the following observation:

1. The amount deposited was from the amount on which tax was already paid.

2.  It is not like earlier NSS where the amount deposited was exempt from tax. Hence, it cannot be taxed on premature withdrawal in case any exemption was not claimed in tax on this amount u/s 80C? Kindly clarify. [mohankumaran2003@yahoo.co.in]

Opinion:

1.      Amount deposited under senior citizens saving Scheme is eligible for deduction u/s 80C of the Income Tax Act, 1961 subject to overall maximum cap of Rs. 1.50 Lakh.

2.      If the amount deposited is withdrawn within a period of 5 years of its deposit, the amount so withdrawn would be taxable in the year of withdrawals [Clause (6A) to section 80C]. It is advisable to claim deduction only if investment could be kept untouched till 5 years.

3.      Reading section 80C in totality & in accordance with true spirit of law, I am of the view that amount would be taxable only if the deduction is claimed u/s 80C at the time of investment. If no deduction u/s 80C was claimed at the time of investment, nothing would be taxable for premature withdrawal. If deduction is claimed only towards the part investment (say Rs. 10 Lakh is invested in SCSS whereas deduction is claimed for Rs. 1 Lakh) then premature withdrawals of Rs. 1 Lakh alone would be subject to tax by virtue of section 80C(6A).

Query 3]

I purchased a plot in the year 1997 & intent to sell it in this FY i.e., 2017-18. I need to calculate L T C G. As per information made available, the shift in base year for Cost inflation index (CII) from 1981 to 2001 is w.e.f. 1^st April2018 and for assessment year 2018-19.

My queries are:

i.                   For calculating capital gain (CG), should I take CII base year as 1981 or 2001? If yes, please let us know the cost inflation index from 2001 onwards.

ii.                If I have to take base year as 2001 for CG calculation then how to arrive at Fair Market Value (FMV) for 2001? Who are all the authorized persons to declare FMV? [N.Sundar, Bhilai- nsundarbhilai@gmail.com]

Opinion:

1.      Earlier Capital gain was required to be calculated by taking 1981 as the base year in respect of old properties acquired prior to 1981. The base year has been changed from 1981 to 2001 by the Finance Act-2017 applicable from the Assessment Year 2018-19 (i.e., Financial Year commencing from 01.04.2017).  As a result of this amendment, the cost of all the assets acquired prior to 01.04.2001 would be replaced by the fair market value of the assets as on 01.04.2001. The change in the base year is for all classes of assets be it real estate, unlisted shares, gold and bond funds. So, even if the gold acquired prior to 01.04.2001 is sold now, Long Term Capital Gain (LTCG) would be required to be computed by taking the fair market value of it as on 01.04.1981.  In your case, you intend to sell the property in the FY 2017-18 & so would be able to replace the cost of acquisition of the property by the FMV as on 01.04.2001.

2.      Amendment has resulted in change in the provisions relating to indexation for the purpose of computing Long Term Capital Gain (LTCG). Old Cost Inflation Index (CII) has now become redundant & CBDT has notified the new CII with base year as 1-4-2001 [vide notification No. SO 1790(E) (No. 44/2017)  (F. No. 370142/11/2017-TPL)], Dated 5-6-2017] as under:

S.No.	Financial Year	Cost Inflation Index
1	2001-02	100
2	2002-03	105
3	2003-04	109
4	2004-05	113
5	2005-06	117
6	2006-07	122
7	2007-08	129
8	2008-09	137
9	2009-10	148
10	2010-11	167
11	2011-12	184
12	2012-13	200
13	2013-14	220
14	2014-15	240
15	2015-16	254
16	2016-17	264
17	2017-18	272

3.      Fair Market value (FMV):
FMV is an estimated market value of an assets (be it gold, ornaments, land, building, etc) which it would fetch if sold in the market to a knowledgeable, unbiased & genuine buyer. FMV may be arrived at by following the precedent or by extrapolation or by referring it for formal valuation to the certified valuer. For properties, the most common method to calculate the FMV is to collect the evidence of transactions of similar type of properties in the same locality during the relevant time frame. This information/data can be obtained from the parties to the transactions or from the registrar office. This may require a lot of efforts & homework and may be difficult for lot many persons. Alternative option is to approach the Government approved valuer & get the report of FMV. 
[There is one more welcome change by the Finance Act-2017. The holding period of immoveable property (land & building & not for all the classes of assets) for qualifying as a long term capital assets is reduced from 3 years to 2 years. As a result, gain arising on sale of immoveable property after a holding period of 2 years would be (a) considered as long term capital gain (LTCG); (b) eligible for indexation benefit (c) qualifying for tax saving options u/s 54EC by the investment in specified bonds or u/s 54 / 54F by investing the amount towards purchase/construction of house property.

[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at

SSRPN & Co

10, Laxmi Vyankatesh Apartment

C.A. Road, Telephone Exch. Square

Nagpur-440008

or email it at nareshjakhotia@ssrpn.com]