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[Section-51] : Treatment of Advance Money Received and Forfeited for Computing Capital Gain


1.         In case an asset was subject to negotiations for transfer and a deal was made.

2.         The deal was firmed up by receiving some amount as advance.

3.         Such advance was received by the assessee [present seller] and not by any previous owner.

4.         The cost of such asset shall be reduced by such advance money received and forfeited by the assessee. In case FMV on 1-4-1981 is adopted and advance money is received either before or after this date and is forfeited, it shall be reduced out of the F.M.V.

Important Note.

Advance money is to be reduced from cost of acquisition/WDV/FMV on 1-4-81 only while computing capital gain from such asset for the assessee who had received and forfeited the advance money in the past. Thus, where such an assessee transfers this capital asset to another person as per Section 49 (1) i.e. by way of gift, will etc., advance money forfeited by assessee transferring capital asset shall not be reduced from cost/WDV/ FMV as on 1-4-81 while computing capital gain for the assessee who acquire such asset as per Section 49(1)

To put it simply, advance money forfeited by previous owner shall not be reduced from Cost / WDV / FMV, while computing the capital gain for the person acquiring capital asset without any price u/s 49(1)

5.         In case advance money received and forfeited is more than cost of acquisition of such asset, nothing shall be taxable at the time of receipt. As and when such asset is sold, the excess of amount received and forfeited over cost of acquisition shall be assessed to tax as capital gain.

6.         If the amount of advance money is forfeited due to fault of buyer, it shall not be treated as capital loss in the hands of buyer but if advance money is received along with additional compensation due to the fault of seller, additional compensation received from seller shall be treated as capital gain in the hands of buyer.


More Topics ... @ ' Capital Gain's

Capital Gain , Capital Assets & Property for Computing Capital Gain
Types of Capital Assets for Computing ‘Capital Gain’
Types of Capital Gains for Computing ‘Capital Gain’
Computation Of ‘Period Of Holding
 Transfer Of A Capital Asset [Section-2(47)]
Transactions Not regarded as ‘Transfer’ [Section-47]
Capital Gain is Deemed to be the Income of the Previous Year
Amount Received from insurer [Section-45(1A)] for Computing Capital Gain
Transfer of Capital Assets by a person to firm, AOP or Body Of Individuals (BOI) [Section 45(3)] for Computing Capital Gain
 Enhancement of Compensation on Compulsory Acquisition of Assets [Section-45(5)] for Computing Capital Gain
Sale of units Purchased for Deduction U/s 80 CCB [Section-45(6)]
Distribution of Assets by A Company in Liquidation for Computing Capital Gain
Capital Gain on Purchase by A Company of its Own Shares or Other  Securities [Section 46A]
Method of Computing Capital Gain [Section 48]
Expenses Disallowed u/s Section 48 for Computing Capital Gain
Cases in which the Indexation of Cost is not to be done while Calculating long Term Capital Gain
 Computation of Capital Gain in Case of Non-Residents [Sec. 48 Proviso 1 ]
Determination of Cost of Acquisition for Computing Capital Gain.
Taxation of Gain on ‘Slump Sale’ for Computing Capital Gain

Special Provision for full Value of Consideration in certain cases (Section 50C] for Computing Capital Gain
Treatment of Advance Money Received and Forfeited (Section-51] for Computing Capital Gain
Cost of Acquisition of Goodwill [Section-55(2)(a)] for Computing Capital Gain
Cost of Acquisition of Shares [Section 55 (2) (v)] for Computing   Capital Gain
Capital Gains Exempted u/s 10
Capital Gains—Exempted u/s 54
 Capital Gain on Transfer of Self-Cultivated Agricultural Land in Urban   Areas [ Section 54 B]
Capital Gains on Compulsory Acquisition Of Land And Buildings [Section 54D]
 Capital Gain on Transfer of any Long Term Capital Asset [Section-54EC]
Exemption of Capital Gain on Transfer Of Long-Term Capital Assets in case of Investment In Residential House [Section 54F]
Capital Gain on Shifting of Industrial Undertaking from Urban Areas to Non-Urban Areas [Section 54G]
 Exemption of Capital Gain on transfer of assets in case of shifting of Industrial Undertaking from an urban area to any Special Economic Zone (SEZ) [Sec. 54GA]
Long term Capital Gain on Transfer of Residential Property if Net Consideration is Invested in the Equity Shares of an Eligible company [Section 54GB] [w.e.f. A.Y. 2013- 14 but upto A.Y. 201 7-1 8]
Reference to Valuation Officer [Section 55] towards Capital Gain

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