Income tax: How long-term capital gains are taxed on ancestral property?
Answer: In case of capital assets received under gifts the combined holding period for which the capital asset was held by the same would be counted from the date on which the previous owner who had actually acquired for consideration will be taken into account. Since the combined holding period of your and your father exceeds 24 months, the profits on the sale of the plot will be long-term capital gains.
The cost for the purpose of capital gains computation purpose in such a situation is to be taken as the amount paid for by the previous owner who had bought for consideration. For assets bought before 1st April 2001, the assessee can take the fair market value of the asset on 1st April 2001.
Since the cost for which your father had bought is not readily available and since the same was purchased before 1st April 2001, you can take the fair market value of the plot as of 1st April 2001 as the cost for computing the long-term capital gains. For arriving at fair market value on 1st April, 2002, you need to obtain a valuation certificate from a Registered Valuer.
The fair market value of the plot for this purpose under no circumstance can be higher than the stamp duty valuation on that date. Though the law allows you to take your cost of acquisition as the cost incurred by the previous owner in case of any asset received as gifts it does not explicitly provide that the indexation benefit shall also be available from the date on which the paid-for previous owner acquired it.
So strictly speaking though you can take the market value of the property as of 1st April 2001 as your cost but the benefit of indexation would be available to you from August 20114 if one goes by the strict legal provisions. However, Gujrat High Court,
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