Infrastructure bonds are fully taxable

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: I have got my ancestral agriculture land of about 18 kanals in the month of March 2004 from my father as gift. Out of the said 18 kanals land, I sold 6 kanal 5 marla land at the rate of Rs 6,25,000/- on August 10, 2005. The said land is agricultural and it falls within the municipality limit and accordingly stamp duty for sale deed was paid by the buyer as per collector rate for agriculture land within MC.

My father got the land from his father in March 1968 as result of family partition and his father (my grandfather) got the land at time of country (India & Pakistan) partition in 1950 in lieu of his land in (West Punjab) now in Pakistan as per policy of Govt. of India.

Please advise what is my capital gain tax liability and how can I minimize or neutralize this capital tax, if any, arising from the above sale. I am salaried person and getting annual salary of about 2,85,000/- in the current financial year.
Ajit Singh Virk

For computing long-term capital gains arising out of the subsequent sale by the donee or the legatee, the cost of the property is the cost incurred by the donor when he originally acquired it, or the FMV as on 1.4.81 as assessed by an official chartered valuer, whichever is higher. Explanation ‘iii’ to Sec. 48, defines ‘indexed cost of acquisition to mean an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on April 1, 1981, whichever is later’.

This means that in the case of an inherited or gifted property, the cost of acquisition is the cost to the original holder (or FMV as on April 1, 1981) but the date of acquisition should be taken as the date of the inheritance or the gift. However, the character of long or short-term depends upon the date of acquisition of the original holder. In case this original holder has also acquired the property by way of gift or inheritance then it will be the date of very first holder who purchased or constructed the property.