ABOUT THE EXPERT
Arnav Pandya
Financial advisor and Writer,
Arnav Pandya is a writer, consultant and investor. He is a Chartered Accountant and holds the Certified Financial Planner(CM) Certification. He is a MBA from IIM Bangalore and an Executive Scholar from the Kellogg School of Management USA. His area of specialisation is personal finance with an experience of over 10 years in this field. His articles have appeared in leading publications in India and he is also a regular speaker at various seminars and events across the world. He can be reached at arnavpandya@hotmail.com
The cost of acquisition of an asset is an important factor in undertaking the overall capital gains calculation because of the fact that this will play a role in determining the extent of the total capital gains and consequently the taxes to be paid. In most cases the cost incurred for the purpose of the asset is the actual figure to be considered in the working however there are some situations wherein there is choice for the individual to take the fair market value as on April 1, 1981 as the cost of acquisition.
Here is a look at the situation and the details related to it in terms of its actual implementation.
Ownership before the date
One of the conditions wherein the individual will find that they have the choice of choosing the actual cost or the fair market value as on April 1, 1981 as the figure for their workings is when the asset was actually purchased before this date. So if an asset like say a property or a share was purchased in 1978 then the individual will have to decide as to whether they want to take the actual cost that they have incurred or they want to take the fair value of the asset on April 1, 1981.
This kind of situation will also be applicable if the asset became the property of the individual through a gift or a will or a partition of the Hindu Undivided Family then there is a need to look at the situation carefully. In such a case if the previous owner acquired the property before the April 1, 1981 date then the individual would once again need to choose between having the actual cost or the fair value figure fixed for April 1, 1981 as the relevant figure for their workings.
Optional choice:
An important point for the individual to understand is that in case of consideration of the figures that are relevant then the fair market value as on April 1, 1981 is to be considered. The manner of determining the fair market value for different assets has also been specified. This makes it clear as to which is the relevant figure and hence there is little confusion that will remain on the manner of working on this front. The other aspect is that there is no compulsion to take this figure into the working because this is an option that the individual can consider. If the individual finds that the actual cost is higher then they can choose that or if they find that the market value is beneficial to them then this could be their specific choice. This choice by its very nature means that is available only when the asset was acquired before April 1, 1981.
Not available:
There are also several conditions under which this manner of calculation would not be available and it is important for the individual to note these because they represent the restrictions that will be faced in using the condition. The first thing is that this is not available for depreciable assets and hence the individual has to be careful and ensure that if there is any depreciable asset including any fixed asset then they cannot use the beneficial working.
The other asset where this is not available is the transfer of a capital asset being goodwill of a business, trade mark/brand name associated with a business, right to manufacture, produce or process any article or thing, right to carry on business, tenancy rights, route permits or loom hours. These represent clear areas where the use of this provision is prohibited and hence this has to be noted and the individual should ensure that they stay away from using the details when these are involved.
The author can be contacted at arnavpandya@hotmail.com
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