Capital Gain

[Ethirajan Parthasarathy]

“A” enters into agreement of sale for purchases of property belonging to “B”. A gives part payment as advance in two instalments. Later “A“ assigns the agreement in favor of “C” and in the process recovers advance given plus premium from “C”.

There are decisions to say that premium has to be taxed as capital gain because right to acquire property is also immoveable property. In the above circumstance, how is the cost arrived at and whether indexing is allowed for each of advance given at different dates.

[Padmanathan KV]

Installments paid will be treated as cost. indexation will be allowed for each installments based on year in which such installment is paid. However, the question of indexation arises only if it is a LTCG ie. sold after 2 years from allotment.

AI Summary

Indexation of cost on instalments allowed for long term capital gains when right to acquire property is assigned. Premium received on assignment of the right to acquire immovable property is treated as capital gain. Instalments paid by the purchaser are treated as cost, and indexation is allowed separately for each instalment based on the year of payment. Indexation applies only if the gain qualifies as long term capital gain measured from allotment.