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CS Executive · Tax Laws and Practice · Capital Gains

Meera, an individual, has gains of Rs 12,00,000 on transfer of qualifying agricultural land and buys new agricultural land for Rs 10,00,000 within two years, so the excess is charged. Which statement about the cost of the new land for computing a later gain, on a transfer within three years of its purchase, is correct under section 83?

The cost of the new land is nil. Because the capital gains of Rs 12,00,000 exceed its cost of Rs 10,00,000, the Act treats cost as nil when computing gains on a transfer within three years of purchase.

  1. ACost is Rs 10,00,000 reduced by Rs 12,00,000
  2. BCost is Rs 10,00,000 without adjustment
  3. CCost is reduced by the amount of capital gains, giving nil in this case
  4. DCost is nil, because the gains exceeded the cost of the new assetCorrect

Explanation

Where the capital gains exceed the cost of the new asset, section 83(1)(i) says the cost is nil for a transfer of the new asset within three years. The reduction rule in clause (ii) applies only when gains are equal to or less than the cost, so the option about reducing cost does not fit.

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