Sale of vacant site if purchases value not shown in I.t return

Question BankCategory: Income TaxSale of vacant site if purchases value not shown in I.t return
AvatarKollipara sundaraiah asked 9 months ago

Sir,
I.t.assess sales vacant site value rs.3,50,000/- Dt:20-03-2020 in f.y.2019-2020.
This site purchases value rs: 1,70,000/- Dt:20-05-2012 in f.y.2012-2013.
Assess mistake purchases of vacant site in f.y.2012-2013 not shown in I.t. returns( books not entered ).
Question:
Assess sales of vacant site rs.3,50,000/- shown in I.t. returns compulsory  and capital gains applicable or not.
Purchase of site Value how to adjustment producure in books and I.t. returns.

1 Answers
AvatarKumar answered 9 months ago

This problem is related to Capital Gain tax. 
First thing is that you have mentioned that purchase of vacant land in FY 2012-13 was not shown in income tax return and not entered in any books. But Capital gain tax is attracted on sale of capital assets and not on purchase. 
Assuming that assesse is an individual, then purchase of vacant land for 170000/- in FY 2012-13 was not required to disclosed in income tax return because no tax is applicable on this in 2012-13. 
But as per section 194IA,  (w.e.f 1st June 2013) Buyer of immovable property (which may be residential property, commercial property or land but done not include agriculture land) has to deduct TDS@1% from the the sale consideration if the value of the transaction is Rs. 50 Lakh or more. This 1% TDS has to be deposited by the buyer to the tax department with the form 26QB.
But present case is not covered under section 194IA being transaction value is less than Rs. 50 lakh.
Hence first thing that you have not disclosed the purchase of property in ITR in FY 2012-13 does not have any problem because this was not required to be disclosed in ITR. (considering assessee is any individual having PGBP)
Now coming to second point that this property was not entered in books. Then assessee have all the record of the property to add it as his personal assets.:
Vacant Site land A/c Dr. 
cash/bank A/c.
Now coming to your question that this land is sold in FY 2019-20 then Capital gain tax is attracted. (assuming that the piece of land is a capital assets as per definition given under section 2(14) of income tax Act. and this is not an agriculture land, as capital tax tax applicable only in case of capital assets and capital gain tax does not apply on sale of agriculture land. )
Land is a short term capital asset, when held for 36 months or less (i.e. up to 3 years), and on sale upto 36 months, short term capital gain tax will apply.  If held for more than 36 months, it is considered a long-term capital asset, and on sale after 36 months long term capital gain tax will apply. So tax implications too vary based on the duration for which you own an asset. In the given situation, land was hold for more than 36 months hence long term capital gain tax will apply. 
In case of sale of land, if short term capital gain happens, then it will be added in taxable income of assessee and will be taxed as per applicable slab rate But if long term capital gain happens then it will taxed @ 20% rate. 
 
How to calculate long term capital gain tax on sale of land;-
Sale consideration less indexed cost of acquisition/improvements = long term capital gain.
hence to calculate your capital gain, you have to find out indexed cost of acquisition with the help of given table. 

Sl. No.
Financial Year
Cost Inflation Index

(1)
(2)
(3)

1
2001-02
100

2
2002-03
105

3
2003-04
109

4
2004-05
113

5
2005-06
117

6
2006-07
122

7
2007-08
129

8
2008-09
137

9
2009-10
148

10
2010-11
167

11
2011-12
184

12
2012-13
200

13
2013-14
220

14
2014-15
240

15
2015-16
254

16
2016-17
264

17
2017-18
272

18
2018-19
280

19
2019-20
289

20
2020-21
301

hence it is clear from the given table that 200 rupees of FY 2012-13 are equal to 289 rupees of FY 2019-20.
You have incurred Rs. 170000/- in FY 2012-13 which now be multiplied by 289 and divided by 200 to arrive are your indexed cost of acquisition. which is Rs. 245650/-
Hence your Long term capital gain will be rs. 350000/- less Rs. 245650/- = 104350/-
this long term capital gain will be taxed @ 20%  which will be further increased by EC & SHEC after adding will other income tax liability. 
Hence you have to disclosed this capital gain in Your ITR for FY 2019-20. As far as accounting is concerned in your personal books you can do following entries:-
Cash/Bank A/c Dr. 350000/-
To Gain on sale of property 180000/-
to vacant site Land Rs. 170000/-
because your actual gain is Rs. 180000/-, which you can enter in your books of accounts. then with the tax amount you can pass following entry, and recognize tax as your expenses.;-
Statutory taxes A/c Dr. 
to income tax payable. a/c
 
then on payment of taxes;-
 
Income tax payable A/c Dr.
to bank 
 
 

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