Taxation of Capital Gains on Disposal of Immovable Property Section 37(1a)

Taxation of Capital Gains on Disposal of Immovable Property Section 37(1a): Currently, Capital Gain arising on disposal of immovable property is chargeable to tax at slab rates prescribed under division VIII part 1 first schedule of ITO, 2001.  However, Finance Bill 2021 seeks to propose following amendments:

1. With substitution of slab rates prescribed in Division VIII of Part 1 of First Schedule with single rate of tax @5% of capital gain instead of existing slab rates varying from 2.5% to 10%. Thus, the gain below Rs. 5 million computed by taking benefit of holding period shall be subject to tax @ 5%.
2. Taxable capital gain arising on disposal of immovable property (calculated as per formula given
   under sub-section section 3A) upto Rs. 5 million shall be chargeable to tax under sub-section 1A @ 5% and it shall be treated as Separate Block income
3. Taxable capital gain arising on disposal of immovable property (calculated as per formula given
   under sub-section 3A) exceeding Rs. 5 million shall be chargeable to tax under sub-section 1 under the head “capital gains” and thus it shall fall under normal tax regime.
4. Presently, where a person acquires a capital asset by virtue of gift, and subsequently sell such capital
   assets, for the purposes of calculation of capital gain, fair market value of such asset at the time of transfer of gift to acquirer is taken as cost of such asset and resultantly difference of such FMV being cost and consideration received for sale of such asset is taken as capital gain. Now Finance Bill 2021 proposes that if such asset is sold within two years of acquisition, and CIR is satisfied that the said gift transaction was entered into as part of tax avoidance scheme, then cost of such asset in the hands of original transferor of asset shall be taken to be the cost of the asset for the purpose of calculating capital gains. Effectively this would remove the effect of gift transaction and taxable capital gain would be high.

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