Impact of change of Base year to 2001 for Capital gain Tax

DrChaturvediBy Dr Sanjay Chaturvedi, LLB, PhD

Income Tax on Capital Gain Tax was having its base year 1981. For all the properties acquired before 1st April 1981, this date was taken a base year and marked as 100. All capital gains were then calculated as if the property is acquired on 1st April 1981 for all properties acquisition before this date. Capital gains is calculated as difference between cost of property acquisition and sale proceeds of the property.

For Example A property was purchased in 1976 for Rs1,00,000/-. And sold in 2017 for Rs.20,00,000/-. In 1981, the property was valued at Rs2,00,000/- hence the cost of acquisition will be taken as Rs2,00,000/- to calculate the capital gain tax besides considering other cost of acquisition, repairs and maintenance cost, inflation index etc.

When Finance Minister Shri Arun Jaitley announced that the base year from 1981 will be changed to 2001, it was a sigh of relief to hundered and thousands of property purchasers and investors. For 20 years, the base rate shift from 1981 to 2001 was solicited by many chamber of commerce for a reason that it is irrelevant to consider base year which 30 odd years. The valuation of properties have changed many fold. There were two booms in the property market which has increased valuation of properties to almost 1000%.

Assessees were asking Income Tax department to justify 1981 rates which were always in dispute. Income Tax Tribunals and High Courts of states were flooded with cases where assessee challenged Department’s 1981 rates. The difference between 1981 and 2001 rates were above 500 points in consumer price index and inflation index. The value never match especially for properties which are of 1960s. In 1960s, it was for the first time when real estate business came into exsistence. People use to construct house of their own on plots. There was no co-operative norms in fashion neither there were any builder who was constructing homes for a business. Hence determining value of properties before 1981 was much difficult. The rates were also very negligible. For example, in 1956, Pedder Road for sold for Rs58/- per sq ft. today its is almost 58,000/- and more for a sq ft. A 1000 times increment in the value needed to shift base year for a fair valuation of properties and calculating capital gain taxes.

Any transfer by way of distribution of the capital assets by a company in liquidation is not regarded as a transfer for the purpose of charging capital gains in the hands of the company. But, the shareholder receiving the money or other assets, as a result of liquidation, from the company has been made chargeable on the difference between the money so received and / or the market value of the assets on the date of distribution and the cost of
acquisition, etc., of the shares as per section 48 subject to the appropriate adjustment, if any, on the portion of the amount or value of the capital asset which has been assessed as dividend under section 2(22)(c) of the 1961 Act.


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