Full value of consideration for computation of capital gains

Introduction

For computation of capital gain it is important to determine the full value of consideration in respect of the capital asset transferred. The phrase "full value of consideration" has not been specifically defined in the Act. However, in some cases, the Income-tax Act has provided for the amount to be considered as full value of consideration.

1. How to compute full value of consideration?

1.1. In general

The Act has not defined the term 'full value of consideration'. Therefore, it has to be understood in commercial sense according to the prevalent usage. It is the amount of consideration received or receivable by the owner of asset in lieu of transfer thereof. Such consideration may be received in cash or in kind. If it is received in kind, then fair market value of such assets is to be taken as full value of consideration.

Adequacy or inadequacy of consideration is not a relevant factor to determine the full value of consideration. It refers to the price bargained for by the parties to the sale. The expression "full value" means the whole price, bargained by the parties without any deduction whatsoever

However, in the cases explained below, the full value of consideration shall be calculated in contrast to the general principle enumerated above.

1.2. Consideration in case of transfer of immovable property

Where consideration received or accruing on account of transfer for land or building is less than the value adopted by 'Stamp Valuation Authority' of State Government, for the purposes of payment of stamp duty in respect of such transfer, the value so adopted is deemed to be the full value of consideration received or accruing for the purposes of computing capital gain.

Where date of agreement to sale and date of registration of sale deed are not same, the stamp duty value may be taken as on the date of agreement to sale (and not as on the date of registration of sale deed), provided the amount of consideration (or a part thereof) has been received by way of an account payee cheque/draft or by use of ECS through a bank account on or through prescribed electronic modes before the date of agreement to transfer.

However, this deeming provision has the following two exceptions:

1.2-1. If difference is within safe-harbour limit

If the Stamp Duty Value does not exceed 110% of sales consideration, the sales consideration shall not be substituted by the Stamp Duty Value for the purpose of full value of consideration. In other words, actual sales consideration shall be deemed to be the full value of consideration if stamp duty value does not exceed 110% of actual sales consideration.

Example, the taxpayer claims to have sold a plot of land for Rs. 1 crore but the stamp duty value of such plot of land is Rs. 1.10 crore. The full value of consideration in such case shall be the actual sales consideration of Rs. 1 crore. However, if the stamp duty value is Rs. 1.20 crore, the full value of consideration shall be deemed to be Rs. 1.20 crore because it exceeds the actual value of consideration by more than 10%.

(Also see Full value of consideration for transfer of immovable property (other than a capital asset)

1.2-2. If reference is made to valuation officer

Where an assessee claims before any Assessing Officer that the value adopted or assessable by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer. Reference can be made to valuation officer only when stamp duty value has not been disputed in any appeal or revision or no reference has been made before any other authority or Court.

Where case is referred to the Valuation Officer, lower of the following shall be taken as 'full value of consideration' of the property:

(a) Value ascertained by the Valuation Officer; or

(b) Value adopted by the stamp valuation authority.

1.3. Consideration in case of Joint Development Agreements

In case of Joint development agreements, the capital gain is taxable in the hands of owner of immovable property in the tax year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

In this case, the aggregate of money consideration received by the owner of immovable property and the stamp duty value of the property in respect of owner's share in developed project, on date of issuing of certificate of completion by the competent authority, shall be deemed to be the full value of the consideration received or receivable by the owner as a result of the transfer of such immovable property.

1.4. Consideration in case of insurance compensation

Insurance claim may be received in money or in kind or in both. Where it is received in kind, market value of the property is taken as the full value of consideration for the purposes of computing capital gain. Where it is received partly in money and partly in kind, the aggregate of money value and the market value of the property is deemed to be the full of consideration for the purposes of computing capital gain.

1.5. Consideration in case of conversion into stock-in-trade

Where a capital asset is converted into stock-in-trade, it is treated as transfer. In this case, the fair market value of the capital asset on the date on which it is converted or treated as stock-in-trade is deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

1.6. Consideration in case of transaction between partners and firm

1.6-1. Capital contribution by partners or members

When a new partner (or member) is introduced in a partnership firm (or AOP or BOI) and he introduces a capital asset in the firm as his capital contribution, he is deemed to have transferred the ownership of such capital asset to the firm. For the purposes of computing capital gain in such cases, amount recorded in the books of firm in respect of such capital asset is deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

1.6-2. In case of reconstitution of firm

In the event of reconstitution of firm (including AOP or BOI), the firm may distribute capital asset or other assets to the partners (or members). Such distribution of asset to the partner may give rise to the capital gains (if capital assets are distributed) and the business income (if other assets are distributed). Further, capital gains arising to partner on receipt of capital assets or money or both shall also be chargeable to tax in the hands of firm. The computation of income from such distribution shall be made as per the provisions of Section 8 and Section 67(10).

1.6-3. In case of dissolution of firm

In the event of dissolution of firm (including AOP or BOI), the firm may distribute capital asset or other assets to the partners (or members). Such distribution of asset to the partner may give rise to the capital gains (if capital assets are distributed) and the business income (if stock-in-trade is distributed). The computation of income from such distribution shall be made as per this provision of Section 8.

1.7. Consideration in case of transfer of securities

1.7-1. Redemption of Rupee Denominated Bonds

In case of redemption of Rupee Denominated Bonds of an Indian company held by a non-resident assessee, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of such bond shall be ignored for the purposes of computation of full value of consideration.

1.7-2. Unlisted shares

Where consideration received or accruing as a result of the transfer of unquoted shares of a company is less than the fair market value of such shares, the fair market value so determined shall be deemed to be the full value of consideration received or accruing as a result of such transfer.

However, this provision shall not apply to any consideration received or accruing as result of transfer by such class of persons and subject to such conditions, as may be prescribed. In exercise of these powers, the CBDT

(a) The Tribunal, on application moved by Central Government, has suspended the board of directors of such company and has appointed new directors as nominated by the Central Government; and

(b) The share of company and its subsidiary and the subsidiary of such subsidiary has been received pursuant to a resolution plan approved by the Tribunal, after affording a reasonable opportunity of being heard to the Jurisdictional Principal Commissioner or Commissioner.

1.8. Consideration in case of liquidation of company

Any distribution of capital assets by a company to the shareholders on liquidation shall be chargeable to tax in the hands of shareholders. The full value of consideration a shareholder is deemed to have received in case of liquidation of the company shall be aggregate of money and market value of assets received by the shareholder on such liquidation less accumulated profits chargeable to tax as divided income under Section 2(40)(c).

1.9. If consideration is not ascertainable

Where consideration received for the transfer of capital asset by the assessee is either not ascertainable or cannot be determined for computing capital gain, the fair market value of the said asset on the date of transfer is deemed to be the full value of consideration received or accruing as a result of such transfer.

References

CIT v. George Henderson & Co. Ltd. (1976) 66 ITR 622 (SC)

Rule 58 of the Income-tax Rules, 2026

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.