Tax talk

What is the method used for valuing an immovable property consisting of land and residential building in Chennai which was constructed before 1980 for the purpose of calculating the cost of asset indexing for computing capital gains? The property is proposed to be sold in FY 2013-14.

 - Balu Ramanathan

As the building is held for more than 3 years, it is a long term capital asset. According to the Income-tax provisions, the cost of acquisition to be considered for the purpose of calculating capital gains shall be the fair market value of the asset as on April 1, 1981, or the actual cost of purchase, as per the assesse’s choice. The cost of acquisition so arrived at will be indexed using the Cost Inflation Index (CII) of FY 1981-82 (which is 100) as the base year and the CII of the FY in which the asset is sold.

We understand that you intend to sell it in FY 2013-14. However, the CII for FY 2013-14 is yet to be notified by the Indian tax authorities. CII for FY 2012-13 is 852.

You have for a query informed that LTCL and STCL (long / short term capital loss) can be carried forward up to eight assessment years. Should one report the LTCL /STCL in the I-T returns as and when the losses occur and then offset these losses in the year when gains are made or should we report the previous years' losses only in the year when the gains are offset by preserving the statements with us?

 - Kusa Kumar

According to the Income-tax Act, 1961, the Long Term Capital Loss (LTCL) and Short Term Capital Loss (STCL) can be carried forward to eight assessment years immediately succeeding the assessment year in which the loss was first computed. STCL can be adjusted against any capital gain (short term or long term), however, LTCL can only be adjusted against an LTCG.

Carry forward and set-off the loss to eight assessment years is possible only when the loss has been disclosed in return of Income (original or revised) of the Assessment year when the loss was incurred. Such original return of income should have been filed within the due date specified under section 139(1) of the Income-tax Act, 1961.

Therefore, the capital losses have to be disclosed in the I-T returns as and when the losses occur, and continued to be shown in the subsequent returns also until the capital loss gets set off or at the expiry of eight years, whichever is earlier.

(The author is a practising chartered accountant)