Capital Gains on Transfer of Asset Acquired from Previous Owner
Introduction
When a capital asset is acquired through specified circumstances (e.g., inheritance, gift, or reorganization), the period of holding and cost of acquisition are determined with reference to the previous owner.
Computation of Capital Gains
- Scenarios of Acquisition from Previous Owner
- Partition of HUF
- Gift or Will from an Individual or HUF
- By succession, inheritance or devolution
- Distribution on dissolution or liquidation
- Under a transfer to a revocable or an irrevocable trust
- Transfers under amalgamation, demerger, or business reorganization
- Transfers between holding and subsidiary companies (under Section 47(iv) and (v))
- Transfer of capital assets during the succession of a firm, sole proprietorship, or private/unlisted company into a company or LLP (47(xiii)/(xiiib) and (xiv))
- Relocation to IFSC funds
- Transfer of property by a member to his HUF
- Key Factors
- Period of Holding:Includes the period for which the previous owner held the asset.
- Cost of Acquisition:
- Deemed to be the cost incurred by the previous owner.
- If acquired before April 1, 2001, the higher of the actual cost or the fair market value (FMV) as on April 1, 2001, can be used.
- Cost of Improvement:Includes expenditure incurred on or after April 1, 2001, by either the assessee or the previous owner.