Assessess maintained a jewellery business in own commercial building value rs:30 lacs .if assessess commercial building demolished govt occiuped for road extension purpose.assesses rs:15 lacs amount received from govtQuestion:Assessess received amount tax applicable for income tax purposes.
When an assessee receives compensation from the government for the compulsory acquisition of their commercial property, such compensation is subject to specific income tax provisions in India.
Here is the detailed analysis:
Nature of Compensation
The amount received (Rs. 15 lakhs) by the assessee for the demolition of their commercial building due to government acquisition is the consideration on transfer of capital assets.
Capital Gains Tax
Under the Income Tax Act, 1961, any profits or gains arising from the transfer of a capital asset are chargeable to tax under the head “Capital Gains.”
- Capital Asset: The commercial building is a capital asset.
- Transfer: The compulsory acquisition by the government is considered a transfer.
Types of Capital Gains
Depending on the period of holding, capital gains are classified into:
- Short-term Capital Gains (STCG): If the property was held for less than 24 months.
- Long-term Capital Gains (LTCG): If the property was held for 24 months or more.
Calculation of Capital Gains
-
Long-term Capital Gains (LTCG)
- Indexed Cost of Acquisition: The cost of acquisition is adjusted for inflation using the Cost Inflation Index (CII).
- LTCG Calculation: LTCG=Compensation Received−Indexed Cost of Acquisition
-
Short-term Capital Gains (STCG)
- STCG Calculation: STCG=Compensation Received−Cost of Acquisition
Taxability
- LTCG: Taxed at 20% with indexation benefit.
- STCG: Taxed as per the assessee’s applicable income tax slab rates.
Exemptions
- Section 54D: Exemption for compensation received from compulsory acquisition of land and building forming part of an industrial undertaking.
- Conditions:
- The property must have been used for business.
- The assessee should acquire another land or building or construct within a specified period.
- Conditions:
- Section 54F: Exemption for investment in residential property, subject to conditions.
Conclusion
The amount received as compensation (Rs. 15 lakhs) from the government for the demolition of the commercial building will be subject to capital gains tax. Depending on the period of holding, it could either be STCG or LTCG. However, the assessee can potentially claim exemptions under Sections 54D or 54F if the conditions are met.