Page 11 - Budget_2020

Union Budget 2020
Capital Gains
Computation of Cost of Acquisition
For capital assets acquired before 01.04.2001, the assessee has an option to take Fair Market Value (“FMV”)
of asset as on 01.04.2001 or the actual cost, as cost of acquisition

The FMV, in case of land or building or both, shall in any case, not exceed the Stamp Duty Value of such asset
as on 01.04.2001

AY 2021-22 and subsequent AYs

Restricting fair value to stamp duty value is in line with the Government’s thought process across sections like
Sec 50C, 43CA & 56(2)

Case for Segregated Portfolios
SEBI has permitted creation of segregated portfolio of debt and money market instruments by Mutual Fund
schemes whereby on segregation, the unit holders shall hold same number of units in two schemes – the main
scheme and segregated scheme.

In view of the above, the following amendments are being proposed: -
 The period of holding of units of segregated scheme shall be considered from the date of holding of units
of main scheme
 The cost of units of segregated scheme shall be apportioned proportionately based on the net value of
assets transferred
 Accordingly, the cost of units of main scheme shall be deemed to be reduced by the cost of units of
segregated scheme

AY 2020-21 and subsequent AYs

The above proposals are in line with provisions relating to consolidation of scheme or plan of mutual funds
u/s 47 and 49.

Increase in Tolerance Limit u/s 43CA, 50C and 56
Sec 43CA deals with consideration of stamp duty value (SDV) in case of calculating business profits on sale of
land or building or both. Similar provisions are present in Sec 50C for calculating capital gains and in Sec 56
for the purpose of gift taxation.
The tolerance limit i.e. the difference between actual consideration and SDV, is currently at 5%

To increase the limit from 5% to 10% of actual sale consideration

AY 2021-22 and subsequent AYs

Actual consideration is Rs. 1,00,000 and stamp duty value is Rs. 1,08,000. At present, consideration shall be Rs
1,08,000 as it exceeds (100%+5%) of the actual consideration. As per the proposal, full value of consideration
will only be Rs. 1,00,000 since the stamp duty value does not exceed actual consideration by 10% which is Rs.
1,10,000 (100%+10%).

This is a welcome initiative to liberalize one of the most draconian provisions in income tax law wherein both
the buyer and seller are taxed on a presumptive basis. Further the tolerance limit is not a deduction i.e. if the
stamp duty value in the above example is Rs 1,12,00,000 and the actual consideration is Rs. 1,00,00,000, the
entire 12,00,000 shall be deemed as part of sale consideration/additional income as the case may be.

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