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I’m a female senior citizen. I had bought a 248 sq. ft commercial apartment in a DDA leasehold built commercial building from the first owner in May 1994 for 2.2 lakh. Now, I intend to sell the same at an expected price of 25 lakh. While doing so, I expect to incur a brokerage fee of 2%, DDA transfer fee at 5 per sq. ft and a possible transfer endorsement fee by the builder to the second transfer @ 5% of the sale deed. What will be the valuation of the property as of 1 April 2001 (as is required for a property bought before 2001) and thereafter its valuation as in FY22 as per the current indexation table? What will be the cost of acquisition of the property and thereafter, computation of capital gain and possible tax or to invest in 54EC bonds to avoid tax?

—Urmila K.

It is assumed that you own the commercial property, and it is not acquired by you under a lease arrangement. As the immovable property was held by you for more than 24 months, the asset shall be considered as a long-term capital asset and the gains/losses arising out of the sale would be taxable as long-term capital gains or loss (LTCG/L).

LTCG/L is calculated as the difference between net sale consideration (actual sale consideration less brokerage and incidental selling expenses) and the indexed cost of acquisition and improvement.

Where a capital asset is purchased prior to 1 April 2001 (i.e. in May 1994), the cost of such asset for the purpose of calculating LTCG/L on sale can be substituted with the fair market value (FMV) of the asset, as on 1 April 2001, at the option of the assessee. You may therefore get a valuation of the capital asset done as on 1 April 2001 and use either such FMV or the actual purchase cost at your discretion. While there is no express requirement to obtain an FMV certificate, from a documentation perspective one should consider obtaining such a certificate from a registered valuer. It should be noted that, as per the Finance Act 2020, such FMV cannot exceed the stamp duty value as on that date.

The indexed cost of acquisition of the commercial property would be calculated as:

Cost of acquisition (i.e. 2.2 lakh) or FMV as on 1 April 2001 (at your option) / cost inflation index (CII) of FY02 (i.e. 100) x CII of year of sale (CII prescribed for FY22 is 317). Further, if the actual sale consideration is lower than the stamp duty value by more than 10%, the stamp duty value would be regarded as the deemed sale consideration, for the purpose of calculating such LTCG/L.

The tax is payable at 20% (plus applicable surcharge and cess) on the resulting LTCG.

A rollover exemption of the resulting LTCG, if any, on sale of commercial property (other than residential house) is available towards the following investments, subject to the prescribed conditions and timelines: Under Section 54EC of the Act, by investing the LTCG in specified notified bonds within six months from the date of sale; Under Section 54F of the Act, by investing the net consideration in a new residential house located in India.

Accordingly, in the instant case, you may choose to invest the LTCG, if any, in notified bonds in the prescribed manner and claim exemption towards the LTCG, if any.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.