Cut of date for LTCG

Article

Budget suggestion:

Option for Fair Market Value (FMV) be granted for capital assets held for 10 years or more.

Present position:

At present option to assessee is allowed to take fair market value (FMV) if the capital asset sold was held by the assessee/ previous owner  (including period of holding by  previous owner from whom it
is acquired by way of gift, inheritance , etc.) prior to 01.04.1981. In such cases assessee is allowed an option to adopt FMV as on 01.04.1981 instead of actual cost of acquisition in hands of assesse/ previous owner (in case of  acquisition by way of gift/ under will or inheritance etc from previous owner).

Inflation:

There has been substantial inflation in many years. The cost inflation index which take into account only 75% of inflation stands now for FY 2015-16 at 1081. Means for assets acquired prior to 01.04.1981 the cost or FMV ( at option of assessee)  is allowed to be inflated by 10.81 times for ascertaining allowable inflated cost of acquisition while computing long-term capital gains for assets transferred during FY 2015-16.

If 100% inflation be considered then CII would be 1408 for FY 2015-16 as against allowed at present 1081.

The cut of date is very old – more than 35 years. It should have been revised from time to time, however, the approach of authorities, including Finance Ministers in this regard is who care for tax payers.

This is evident from the fact that some Finance Ministers have, from time to time considered inflation to increase tax rates,  amount of  tax in presumptive taxation for the reason that there has been inflation. However, they have almost remained spectator of inflation but no changes or proposed minimal change in basis exemptions for income –tax, exemption limits for TDS, tax audit etc. for long period of times.

All these limits should preferably adjusted for inflation by prescribed formula.

Cut of date must be revisedor can be formulated to ten years back from year of transfer:

It is high time that now cut-off date should be revised to say 01.04.2005. So that assets acquired prior to 01.04.2005 (that is about 11 years ago) are eligible for adopting FMV and applying cost inflation index of year 2004-05 and year of transfer.

Alternately it can be prescribed that in case of long-term capital asset held for more than ten years the assessee shall have option to take FMV as on 1st day of April of FY, which dates back by 10 years from year of transfer.

For example for long-term capital asset held for more than 10 years, transferred during FY 2015-16 assessee shall have option to adopt FMV as on 01.04.2015.

Provision on this line will provide suitable mechanism to take into account inflation (or part of inflation as at present 75%) by mechanism of cost inflation index.