DRAFT-1 : Improving book-keeping of values of plots/flats
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Section 1 : Registering ownerships and sales/purchases of plots/flats
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[Procedure for CGTC i.e. Central Govt Tax Collector]
The CGTC will obtain the plot numbers and flat numbers for each ward/town from the Land Record Officer in the district. For each plot/flat, he will ask the owners to register their tax-IDs at the LRO's office. The CTGC will obtain tax-IDs of owners of each plot/flat. If an owner has NOT come to register his tax-ID, the CTGC will summon him before a Jury, who may impose a fine of upto 2% of the value of the property, as decided by the Jurors.
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Every person, while filing the first income tax return after passing this law, MUST cite the plots/flats he owns, along with flat-ID as given by local LRO, and state the year of purchase and the purchase price, and state if alterations were made after the purchase. If no alterations were made, the CTGC will calculate the Present Indexed Book Value as
(Purchase Price * Index_on_Purchase_Date/Index_of_Previous_Year)
| 1.3
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If the alterations were made after the purchase, then in the first return the person cites after passing of this law, the person must cite alterations he had done from purchase till 5 years ago, alterations he did in previous 5 years and alterations he did in the last year. For simplification, the draft of this Act will use following symbols
D : Date of purchase
P : Purchase price
Aold : Alterations done from Date of purchase to five years ago
A4 : Alterations done between 4th and 5th year
A3 : Alterations done between 3th and 4th year
A2 : Alterations done between 2nd and 3rd year
A1 : Alterations done between 1nd and 2nd year
A : Alterations done accounting year.
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For the first return filed after passing of this law, the Net Indexed Value of the flat will be calculated as follows :
(P + Aold) * (Index/IndexD) + A4 * (Index/Index4) + A3 * (Index/Index3) + A2 * (Index/Index2) A1 * (Index/Index1) + A
where
IndexD = Index as on purchase date
Index4 = Index as 4 years ago
Index3 = Index as 3 years ago
Index2 = Index as 2 years ago and
Index1 = Index as 1 year ago
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In returns after the first return, the person will cite the indexed value as he had disclosed in the previous year, the alterations he made in the current year, and will state the Net Indexed Value of the flat as :
(Previous Value * Index_of_Previous_Year/Index_on_Purchase_Date) + Alterations made in the last financial year.
| 1.6
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If a flat/plot has multiple owners, then each owner must disclose his % of ownership of the flat/plot. The CGTC will assume that each owner paid the amount pro-rated with the %-ownership. And contribution for alteration will be assumed as per their % ownership of the flat. If the owners have contributed in a different proportion, it will be assumed as a gift given by one owner to another, and CTGC may collect applicable gift tax.
| 1.7
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If and when the flat is sold, the capital gains will be
(Sale_price - Indexed_book_value_as_on_sale_date). The seller must report the transaction, and capital gains, in next income tax return after the sale, but need to pay tax ONLY next year without any penalty. During next year, or year before, if he buys any or had bough any number of plots/flats, the capital gains will reduce proportionately.
Say a person buys a flat in 1990 for Rs 10L and sells it in 2000 for Rs 20L. Say indexed value of Rs 10L is Rs 15L. So capital gains is Rs 5L. Now if the person buys say 3 flats/plots in next one year, or had bought them one year before, of total of Rs 18L, i.e. 90% of sale price, then capital gains will be only 10% of Rs 5L i.e. Rs 50,000.
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If the seller had bought a bought earlier than 1 year, but not earlier than 5 years, or the seller buys a flat later than 1 year but before next 5 years, he the price of flat purchased will be scaled down, at the rate of 0.05% a day over 365 days, simple scaling, not compound, and then deducted from the sale price of the flat on which capital gains is to be calculated.
Example : Say a person buys a flat in 1990 for Rs 10L and sells it in 2000 for Rs 20L. Say indexed value of Rs 10L is Rs 15L. So capital gains is Rs 5L. Now if the person buys a flat/plot after/before 900 days for Rs 18L, i.e. purchase price after scaling down will be 18L*(1-0.05*(900-365)) = 18L*26.7/100 = 13.12L. So scaled down purchase price is 66% of selling price of the sold flat. So capital gains to be taxed will be 34% of capital gains from sale i.e. Rs 5L * 34% = Rs 3.3L.
| 1.9
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If the seller does NOT buy a flat for 1 year after sale, he must pay capital gains tax but adding the capital gains in the other income of year in which sale was made, and pay income tax as per prevailing income tax rate. If he later purchases a flat, and has already paid the tax the tax, he may file a revised return of the year in which he made the sale, and claim a refund without interest.
Example: Say a person's other income is Rs 0 and capital gains is from sale of a flat is Rs 200,000 in a year. And he buys no flat for 1 year. Then he must pay income tax on Rs 200,000. Say 3 years later he buys a flat, and after scaling down, capital gains is only Rs 120,000. Then he can file a revised return for that year, calculate the new income tax payable, and claim the refund.
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Section 2 : Capital gains on gold and silver
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On the first income tax return filed after passing of this law, each person shall disclose the amount (in grams) of gold, he had in the begining of the year and
- If he male/HUF has below 100gm or female has below 500gm of the gold, the date of purchase will be assumed as 1/4/1981, or any date after 1/4/1981 as said by the owners. The owners will NOT be required to produce proof of purchase/payments. The purchase price will be assumed as price prevailing purchase price on the end of the year.
- If return filer has above 100gm of gold for male/HUF or above 500gm of gold, for female, the filer MUST provide following details
- The gold of 100gm for male/HUF and 500gm for female can be assumed to be purchased on 1/4/1981 or any date after 1/4/1981 as mentioned by the owners, and no proof of purchase or payment will be needed. The price will be assumed as price prevailing on the purchase date.
- For gold above 100gm for male/HUF and 500gm for female, the owner MUST provide dates/price of purchase. If the owner does NOT remember/have the price/date and proofs of purchase, CGTC will assume that he had purchased 6 years ago, and charge the applicable wealth tax.
- If the return-filer is a non-individual such as company, partnership, trust etc. he will have to provide date/price of purchase of all gold he has. If he does NOT remember/have dates/prices, the CGTC will assume that he puchased 6 years ago and may collect applicable wealth tax.
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For the second and subsequent return that persons file after passing of this law, the persons will disclose opening amount of gold he has and purchase/sales he did during the year, along with price/dates and proofs of purchase. He will calculate the capital gains by subtracting the indexed value of oldest gold, and pay tax on it as per the prevailing capital gains tax rate.
Example :
Say a person has bought gold as follows
year 1990 - purchased 100g
year 1991 - purchased 100g
year 1992 - purchased 100g
year 1993 - purchased 100g
year 1994 - purchased 200g, sold 150g
Then capital gains will be calculated assuming that 100g of gold he sold was the one he had bought 1990 and other 50gm he sold was bought in 1991.
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The capital gains from sale of gold will added to his other income and taxed as per the prevailing income tax rate.
| 2.4
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The capital gains on silver will be calculated and tax in the same was as capital gains for gold, with following change : exemption limit for silver will be 1000gm for male and 5000gm for female.
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Section 3 : Registering ownership and sale/purchase of shares/bonds
| 3.1
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CGTC will ask every company's registrar to freeze the transfer of shares/bonds till it is deematized. The CGTC will also order every deemat account provider to freeze the account, unless tax-ID is registered.
| 3.2
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In the first return that a person files after passing of the law, he will disclose the shares/bonds he owns, and specify details such as company's ISIN number, date of purchase and price of purchase. If the purchase was made over 6 years ago, he need not specify any detail, and there will be no capital gains tax if and when he sells the shares/bonds at any price.
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In the subsequent returns, the person must file
- opening holdings, along with dates/prices of purchase
- sales/purchases made in last financial year
- closing holdings
for each scrip.
If a person has sold a scrip, it will be assumed that the scrip he bought earliest was sold, and capital gains will be sale price minus indexed purchase price. The total capital gains will added to his other income and taxed as per the prevailing income tax rate.
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Section 4 : Capital gains on ownership and sale/purchase of capital goods other than plots/flats, gold and shares
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The income tax return filers MUST register ownership and sale/purchase of gold/silver, plots/flats, and shares will be compulsory. Reporting of sale/purchase of other capital goods will be optional.
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If a person has NOT reported purchase of a capital good in his return, the entire proceeds of the sale of that goods above Rs 50000 in future will be considered as income of that year, and will be taxed as per the income tax rate of that year. For reporting, the person need to specify purchase date, price, bill number as given by the seller and seller's tax-ID. Seller's tax-ID is must, unless purchase was made outside India and does NOT have a tax-ID.
| 4.3
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For goods other than gold/silver, plots/flats and shares, there will be no indexation, and capital gains will be sale price minus purchase price.
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Section 5 : Setting off of capital gains
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There is NO distiction between long-term capital gains tax and short term capital gains tax. If a sale is made during the same year, the indexation, if applicable, will still apply as follow:
Say begining of the year is 1-Apr-1990. Say gold 100gm of gold is purchased on 1-May-1990 at Rs 100,000 and then sold for Rs 110,000 on say 1-Sep-1990. Say index on 1-Apr-1990 is 320 and index on 1-Apr-1991 is 400 i.e. difference is 400-320=80, and daily index change is 80/365. So the index on 1-May-1990 is 320 + 30*80/365 = 326 and that in 1-sep-2004 will be 346. So indexed purchase price is Rs 100,000*346/326 = Rs 106,000. So capital gails is Rs 4000.
| 5.2
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The capital gains/losses will have following portfolios
- flats/plots
- gold
- silver
- shares/bonds
- other capital goods
The gains of one portfolio cannot be cancelled against losses of another. Only the loss in flats/plots can be carried forward to the next year. It year it is carried forward, it will be depreciated by 10%.
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-----------------(end of DRAFT-1) -----------------
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