Example - 1

Gift from the year 2000 Carpet area of 80Sq.m purchased by his uncle in
1981 for a price of Rs.2,40,000/- flat was transferred in the name of A in the
year June 2001.

Assesse started using the Flat in 2000 only

In 2005 he carried out substantial improvement works inside the flat by

spending a total sum of Rs.15,00,000/-

Flat was sold by A in the month of February 2018 for a total price of
Rs.2,40,00,000/- prevailing rate of similar ownership flats in the locality in April
2001 was Rs.40,000/-Sq.m.

Sub Questions

(Which of the following statement is false)

1. Cost of acquisition to the assesse is Rs.2,40,000/-

2. Capital gain tax would be levied at the rate of 20%
3. The assesse is entitled to deduct index cost of improvement
4. The assesse is liable to pay capital gain tax in the matter

Cost of acquisition to the assesse is Rs.2,40,000/-

(Which of the following statement is True)

1. Cost of acquisition to the assesse is Rs.32,00,000/-

2. Cost of acquisition to the assesse is Rs.2,40,000/-
3. The assesse is entitled to deduct index cost of improvement
4. The assesse is not liable to pay in the matter since it was received by
his as gift

80 sqmt*Rs 40000/ Sqmt=Rs 32,00,000

 • What will be the index cost of flat sold in 2018 for the purpose of
calculating gain tax by the assesse A if cost of inflation index for the
financial year 2017/2018 is 272 for the year 2001/2002 it was 100
(a) Rs.32,00,000/-
(b) Rs.87,04,000/-
(c) Rs.6,52,800/-
(d) Rs.62,00,000/-

Indexed cost of flat = (32,00,000*(272/100))

= Rs.87,04,000

• What will be the Index cost of Improvement works carried out in the flat f
cost inflation index for the year 2005/2006 was 117 and 2018 is 272
(a) Rs.34,87,179/-
(b) Rs.40,87,179/-
(c) Rs.15,00,000/-
(d) Rs.30,00,000/-

Indexed cost of improvement carried out in 2005

= (15,00,000 * (272/117))
= Rs.34,87,179

• What will be the deduction permissible to the assesse while computing

capital gain from the sale price of flat under capital gain tax provision if
assesse has spent Rs.1,20,000/- for the brokerage charges and
Rs.25,000/- paid to the society for transfer charges
(a) Rs.87,04,000/-
(b) Rs.1,23,36,179/-
(c) Rs.1,21,91,179/-
(d) Rs.1,45,000/-

(34,87,179+87,04,000+1,20,000+25,000)= 1,23,36,179
 • What was the total capital gain tax 20% rate if assesse has not invested
sales proceeds anywhere
(a) Rs.48,00,000/-
(b) Rs.30,60,000/-
(c) Rs.23,32,764/-
(d) Rs.40,00,000/-

{2,40,00,000-1,23,36,179 } = 1,16,63,821
Capital Gain Tax @ 20% is =Rs. 23,32,764/-
Example - 2

Factory building of built-up area 700 Sqm 20 years old, total

life of the building 40 years with a specification equivalent
to the current replacement cost of 20,000 per sqm is insured
for 50,00,000 in a standard fire policy. There is a partial
damage to the building to a total loss of Rs.10,00,000 due to
peril. 10% cost of foundation.

1. Which peril is not covered under standard fire policy?

a. Impact damage b.STFI c. Earthquake d. Fire
2. Reinstatement value of building excluding foundation?
3. What is the amount payable by the insurer to the insure
for the loss due to fire?
a. 2,00,000 b. 5,00,000 c. 7,70,000 d. 10,00,000
4. What is the present market worth of the building before
fire damage (excluding foundation)?
5. What is the depreciation of the building excluding
foundation? (Neglecting scrap value)
Solution :-
1. Earthquake

2. Reinstatement value of building excluding foundation

R.V of building = 700sqm*Rs.20,000/sqm
= Rs. 1,40,00,000
Foundation Cost 10% = Rs.14,00,000
Building value excluding foundation
= Rs. 1,40,00,000- Rs.14,00,000
= Rs.1,26,00,000
(Super Structure)

3. Amount Payable by the insurer

Depreciation for 20 years =
Rs,1,26,00,000x(20/40) = Rs.63,00,000
Net market worth of factory building (Super structure)
before damage
=1,26,00,000-63,00,000
= Rs.63,00,000
 As a factory is insured for Rs.50,00,000 subject property
is under insured
Average class of policy will be therefore applicable
% of under insurance
= {(63,00,000-50,00,000)/63,00,000}x 100
= 20.63%
Actual loss suffered Rs.10,00,000
Client payable will be 20.63% less
= 10,00,000x(100-20.63)%
= Rs.7,93,700
The nearest option is Rs.7,70,000

NOTE : In case of standard fire policy with

reinstatement class then the value of building for
proportionation is to be considered as Rs.1,26,00,000
instead of Rs.63,00,000

4. The present market worth of the building before fire

damage (excluding foundation) is Rs.63,00,000
5. The depreciation of the building excluding foundation
Rs.63,00,000
Example - 3
Que : A fully rented, fully developed building in a plot has a total of 4 floors. Total Plot area is 1000
Sq.m and total built-up for area of the building is 250 Sq.m. Permissible FSI is 1.00. There are
4 Tenants per floor and Tenants of lower 2 floors pay a rent of Rs.750/-Month/tenement which
includes property Tax. Top 2 Floors are occupied by the owners of the property itself. Total
property taxes are Rs.25,000/- 6 Months for 4 Floors. Tenants rent include 50% of total tax.
Non - Agriculture tax of the plot is 800/-Year. Building insurance premium is 1000/- Years.
Assume repair cost 6% of the gross rent and collection & Management charges at 3% of the
gross & stamp duty paid at the time of purchase is Rs.9,000/-. The land of freehold to
prevalent land of freehold land is locally at present is Rs.8000/- Sq.m of Ownership flats in the
locality for similar construction as on today is Rs.30,000/-Sq.m

Que : What will be the present market value owner occupied portion of the building is

(1) Rs.75,00,000/- (2) Rs.1,50,00,000/- (3) Rs.10,00,000/-

(4) Rs.78,00,000/-

Value of the building occupied by land owner

2*250sqm * Rs.30,000/sqm = Rs.1,50,00,000

Que: What will be the total annual rent receivable by the landlord from all the tenants?

(1) Rs.6,000/- (2) Rs.72,000/- (3) Rs.1,44,000/- (4) 12,000/-

Total rent received by the owner Rs.750*4*2*12

= Rs. 72,000
Que: What is the market value of the balance potential in the property?

(1) Rs.1,50,000/- (2) Rs.15,00,000/- (3) Zero

(4) Revisionary value of the Land

Zero

Que: What will be the present market value of the tenanted portion of the building if rented income
is assumed to be in perpetuity & rate of capitalisation is adopted @ 8%

(1) Rs.9,90,500/- (2) Rs.1,50,00,000/- (3) Rs.77,50,000/- (4)

Rs.4,95,250/-

1.Total rent received by the owner Rs.750*4*2*12

= Rs. 72,000
2.Total Outgoing for tenant share
Property tax = Rs.25,000*2/2 =Rs.25,000
N.A Tax = Rs.800/2 = Rs.400
6% Maintenance Cost =Rs.72000*6/100
= Rs. 4320
3% Rent collection charges = Rs.72,000*3/100
= Rs. 2160
Building insurance = Rs.1000/2 = Rs. 500
Total Outgoings = Rs. 32,380

3.Value of the property for rented portion

 Net rent =Rs.72000-32380
= Rs.39,620
Capitalizing the rental income by 8% Y.P
= 100/8 =12.5
Value = Income * Y.P = Rs.39,620*12.5
= Rs.4,95,250

Que: Which of the following is not considered as outgoing for computing net rent received by the
landlord?

(1) Property Tax (2) Repair cost (3) Stamp duty paid (4) Management Charges

Stamp duty paid

Que: What will be the total outgoings including repair allowance & Collection charges for the
tenanted portion of the building

(1) Rs.32,380/- (2) Rs.57,380/- (3) Rs.33,280/- (4)Rs.38,860/-

32380/-
Example - 4

M.I.D.C Least 2000 sqm of land for industrial use in 1998

by charging full premium at a rate of 450/sqm lease
period was 99 years for further renewal of 99 years.
Lessee constructed factory building 950sqm in 1998.
Lease provides that incase of sale lessee shall pay 20% of
unearned increase in land value to the lessor. The
replacement cost of factory building in 2018 is
Rs.25,000/sqm and land value in 2018 is Rs.4,000/sqm.
Total life of building is 40 years.

1. What is the value of lessor’s interest?

2. What is the present value of the building?
3. What is the value of lessee’s interest?
4. What is balance economic life of the building?
Solution :-
1. Value of lessor’s interest
Unearned increase = Rs.2000*(4000-450)
= Rs. 71,00,000
Value of the lessor’s right = 0.2*Rs.71,00,000
= Rs.14,20,000

2. Present value of building

Replacement cost for factory building
= 950sqm*Rs.25000/sqm
=Rs. 2,37,50,000
Depreciation for 20 years = Rs. 2,37,50,000 *20/40
=Rs. 1,18,75,000
Present Value of building = Rs. 1,18,75,000

3. Value of lessee’s interest

Value of land = Total land value – lessor’s interest
= (2000*4000)-( Rs.14,20,000)
= Rs. 65,80,000
Value of lessee’s interest
= Value of land + value of building
= Rs. 1,84,55,000

4. Balance economic life of building is 20 years