My friend who is a senior citizen has purchased a plot in the year 1999 in a village it comes under grampanchayat for Rs.25000/- including registration charges

Last month it was sold for Rs. 4 lakhs

The market value has been indicated in the registered documents at Rs.9.65 lakhs. It is told that individual market rates depending on the location or even the village  are not taken into consideration, but it depends on the group villages come under the grampanchayat.

Originally the real estate company has converted the agricultural land into residential/commercial plots and sold. The market value of the plot 1999 as indicated in the document was only about 5% more than purchase value. The purchase price plus stamp duty which is about Rs.25000/- was slightly more than the market price.

My query is – the long term capital gain is to be calculated higher than the market price or sale value. In the present case it is Rs. 9.65 lakhs ..

May kindly advise how to calculate the long term capital gain and save the tax to the extend possible. In this connection following points may also be kept in view.

a) The cost of all the assets acquired prior to 01.04.2001 would be replaced by the fair market value as on 01.04.2001. But the fair market value (FMV) prevalent in 2001-02 is not easy to obtain; in the absence of which whether market value as indicated in the document can be adopted as FMV for 2001-02.

b) Whether the long term capital gain tax can be saved by investing the entire market value of Rs. 9.65 lakhs , in residential Plot or house or by investing in specified bonds u/s 54/54F, 54/EC.

Thankful to you if you could give the details relating to (a) period of time within which it is to be invested and locking period invested in the specified bonds

   [M Krishna Rao, Qr.2B/2A/10, Bhilainagar , Durg, Chhattisgarh, PIN-490006]


  1. Capital gain tax liability is required to be computed by taking the higher of actual sale price or stamp duty valuation of the property. In your case, you have sold the property for Rs 4 Lakh but the stamp duty valuation is Rs. 9.65 Lakh. Capital gain would be required to be computed by taking Rs. 9.65 Lakh and not Rs. 4 Lakh. After the recent amendment by the FA-2018, actual sale price can be adopted if the stamp duty valuation is not exceeding 5% of the actual sale price. If stamp duty valuation exceeds by more than 5% then stamp duty valuation would be relevant for computing capital gain. {Taxpayer can claim value of Rs. 4 Lakh before Assessing Officer, but then AO can refer it to valuer for valuation and thereafter would assess the income. In this case, nothing is there in the hands of the taxpayer}.
  2. Since the property sold was acquired prior to 01.04.2001, you can adopt fair market value (FMV) as on 01.04.2001 as cost of acquisition for computing Capital Gain. You can approach registered government valuer for getting the valuation as on 01.04.2001.

Long Term Capital Gain (LTCG) can be saved by any or both of the following mode:

a] Exemption u/s 54EC: For this, you have to invest the amount of LTCG (by taking sale value of Rs. 9.65 Lakh) in the specified bonds of NHAI/REC within a period of 6 months from the date of transfer. It has a lock in period of 5 years now.

b] Exemption U/s 54F:
For this, you have to invest the amount of sale consideration (Rs. 4 Lakh) for purchase/ construction of house property within a specified time period.
For purchase, specified time frame is 1 years before or 2 years after the date transfer. For construction, it is within 3 years from the date of transfer of plot.

It is painful and surprising that for 54EC, Rs. 9.65 Lakh would be relevant whereas for 54F Rs. 4 Lakh would be relevant. The law and logic don’t co-exist and the income tax Act is an interesting piece of Legislature.