Capital Gains after selling ancestral property – How to Calculate ?

POSTED BY NaveenRPatil ON November 18, 2013 2:43 pm COMMENTS (8)

How are capital gains calculated on selling ancestral/inherited property, which is almost 40 years old and has little documentation on cost basis?

Also, what are the options to deal with the cash component in such a transaction, which is almost 65% of the market price?

8 replies on this article “Capital Gains after selling ancestral property – How to Calculate ?”

  1. ashalanshu says:

    Dear Nsabhyanakar, ideally you should register at actual price. In case the registration happens at Govt. price and actual price is more, declare the actual price in your IT return and pay the dues taxes or save the same from legal means and sleep peacefully.



  2. nsabhyankar says:

    Does that mean that it is OK to register a sale at a price lower than the actual sale price when you are declaring the actual price for income tax calculation?

  3. ashalanshu says:

    Dear Naveen, yes it may create a problem for the buyer but why you should worry about it? No, the two values need not to be matched. You are declaring actual gains (including cash component) so actually you are honestly declaring all the income.



  4. NaveenRPatil says:

    Hello Ashal,

    I have 2 questions:

    The sale deed used for registration will have the valuation at government rates, right? The registrar has given the current rates for land and building, and this value will be used for registration taxes, stamp duty, etc. Do you mean my income tax return can state the market value while the sale deed uses the government valuation? I am under the impression these values need to match.

    Wouldn’t it affect the buyer if my income tax return states the market price because he may then need to prove where he got the money to pay for the property?


  5. ashalanshu says:

    Dear Naveen, the calculation part is clearly understood by you. Regarding Cash thing, on your part, you may declare the actual amount of LTCG and accordingly then it ‘ll be your all white income after payment of due taxes. Hope it satisfy your basic query for that black thing. 🙂



  6. NaveenRPatil says:

    Hello Ashal,

    Thank you for the information on calculating LTCG. Once I have the -1-04-1981 valuation, I guess the accountant will apply the inflation index to calculate the cost basis. The current government valuation will then be the sale proceeds. And, the difference between sale proceeds and cost basis will be used to calculate the LTCG.

    Yes, by cash component, I meant the black money, and yes, this is a big headache and has the potential to become a heartache. With this transaction, I also don’t seem to have an option to not deal with it. The number of potential buyers will become severely restricted if we insist on the market price on sale deed. And, I’m getting asked why I’m trying to be a saint when it is a generally accepted practice in real estate transactions to have cash make up the difference between current government valuation and market price. It feels like getting sucked into an ocean current.


  7. ashalanshu says:

    Dear Naveen, please contact a Govt. Approved valuer in your city to provide you the value of the property on 1st April 1981. This ‘ll be the basic purchase price for you for calculating LTCG.

    Regarding cash component, I assume you are talking about black money. Sorry dear, it’s your headache and you need to take pain for this. As an honest tax payer, We do not promote such things.



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