When is a plot allotted by a government authority considered acquired for capital gains tax?

Selling a plot allotted by a government housing authority decades ago can raise an important tax question: when is the property considered to have been acquired for calculating capital gains? The answer can significantly affect the holding period, the cost of acquisition and the tax payable on the sale. In this case, although the plot was allotted in 1987, the final instalment was paid and registration completed only in 2000.

Today's Q&A explains such details in response to a query by a reader.

Thought the term of allotment of such plot of land generally provide for forfeiting of the money paid by you if you fail to pay the instalments but you become owner of the plot from the date of allotments.

Since you have held the plot of land for more than 24 months, the profits will be taxed as long term capital gains. Based on the above discussion it becomes apparent that your holding period of the plot of land begins from 1987. Since the plot was acquired before 1st April 2001, you have option to take the fair market value of the plot on 1st April 2001 as your cost for computation of long term capital gains.

For ascertaining the fair market value of the plot of land on 1st April 2001, you can adopt the value as per the stamp duty ready reckoner or the circle rate as is popularly known in north India if such ready reckoner is available for 2001.

If such ready reckoner is not available, you can approach any registered valuer to issue you a valuation report for fair market value of the plot on 1st April 2001. It may be noted that the fair market value as per the valuation report can exceed the stamp duty valuation on that date.

If you do not wish to pay the taxes you can save tax on such long term capital gains either by investing the sale proceeds for acquiring a residential house property within prescribed time period and subject to satisfaction of certain conditions.