Capital gain taxation in India is governed by Sections 45 through 55 of the Income Tax Act, 1961, supplemented by the Income Tax Rules — particularly Rules 11U, 11UA and 11UAE. The Government Approved Capital Gain Valuer’s certificate enters the framework at multiple points in this structure.
Section 45 charges capital gain to tax: any profits or gains arising from the transfer of a capital asset are chargeable to income tax under the head “capital gains” in the year in which the transfer takes place.
The Government Approved Valuer’s role begins when the capital asset’s value must be established for the computation.
Section 48 prescribes the computation of capital gain:
The Government Approved Capital Gain Valuer’s certificate is relevant to the following components:
Where the actual consideration understates the FMV — as in Section 50C for property or Section 50CA for shares — the Government Approved Valuer’s certificate establishes the FMV that either supports the Section 50C(2) challenge or provides the Section 50CA deemed consideration.
Where the asset was held before 1 April 2001, the Government Approved Valuer’s Section 55(2)(b) certificate substitutes the FMV as on 1 April 2001 as the CoA. Where the asset was gifted or inherited, the Government Approved Valuer’s certificate at the relevant date establishes the Section 49 cost.
For property held over multiple decades with structural improvements, the Government Approved Valuer’s Civil Engineering assessment establishes the quantum of the improvement and its cost at the time it was made.
Section 49 provides the cost of acquisition for assets not purchased.
The donee’s cost = the donor’s original cost (or the FMV at the gift date if the gift was taxable under Section 56(2)(x)). The Government Approved Valuer’s certificate at the gift date establishes the cost for Section 56(2)(x)-taxable gifts.
The donee’s cost = the FMV at the date of the gift. A Government Approved Valuer’s certificate at the gift date, even if not required for the donor’s Section 56(2)(x) position, establishes the donee’s cost basis for future capital gain.
The heir’s cost = the cost in the deceased’s hands (or the FMV at the date of death where the deceased held the asset before 1 April 2001). The Government Approved Valuer’s estate certificate establishes this cost.
The cost in the hands of the member receiving an asset on HUF partition is the cost in the HUF’s hands.
The relevant valuation date and documentary evidence establish the cost basis for subsequent capital gain computation.
Section 50 provides a special provision for capital assets which form part of a block of assets on which depreciation has been allowed: the cost of acquisition is the written-down value (WDV) of the block rather than the original cost.
For depreciable property — factory buildings, plant — on which depreciation has been claimed, Section 50 applies; the Government Approved Valuer’s Section 50 certificate addresses the WDV-based capital gain computation.
The valuation approach must recognise the special treatment applicable to depreciable assets forming part of a block of assets.
Discuss the asset, relevant valuation date and applicable statutory provision directly with the valuation practice.