In April 1973 my eldest sister purchased a plot of land which she gifted me through registered deed of gift dated 23rd August 2004. I have sold the same though a deed of conveyance dated 14.03.2024. A govt. registered valuer is chalking out the valuation of the land as on 01.04.2001 (the cut-off date of IT dept) to enable me calculate the capital gain tax under IT indexation which is approx. 350 in 2024. Taking the valuation as 'X' on 01.04.2001, the present valuation becomes 3.5X. How can I calculate the nett capital gain the sale value being say 'Y' with what allowable deduction of expenses applicable? May I have the detailed clculation to arrive at the taxable capital gain?

Ans: You can save tax on the capital gains by investing into different avenues:

a. Purchase or construct another house. New house is purchased one year before or two years after the sale of the old house or new house is constructed within 3 years after the sale of the old house. This new house can’t be sold within 3 years of possession. The cost of new property should be less than the earlier sale amount.

b. You can invest in 54EC bonds to a maximum limit of Rs 50 lakh. You must invest in notified bond within 6 months of sale.

Ans: To calculate the capital gains tax on the sale of your property, we need to consider the acquisition cost, the cost of improvement, and the sale proceeds. Let's break down the calculations:

Acquisition Cost:
The acquisition cost is the amount you paid for the land in 2001, which is Rs. 2.5 lakhs.

Cost of Improvement:
The cost of improvement includes the expenses incurred for construction and any subsequent additions or extensions made to the property. In this case, it includes the construction of the initial two floors, the extension of one floor, and any other related expenses. You mentioned that the total expenses were around 25-30 lakhs. Let's assume the cost of improvement is Rs. 28 lakhs.

Indexed Cost of Acquisition and Improvement:
To adjust the acquisition cost and cost of improvement for inflation, we need to calculate the indexed cost. The indexed cost is calculated using the Cost Inflation Index (CII) provided by the Income Tax Department. The CII for the relevant years can be found on the Income Tax Department's website.

Let's assume the CII for the year 2001-2002 was 100 and for the current financial year, it is 317.

Indexed Cost of Acquisition = Acquisition Cost × (CII for the year of sale/CII for the year of acquisition)
Indexed Cost of Acquisition = Rs. 2.5 lakhs × (317/100) = Rs. 7,92,500

Indexed Cost of Improvement = Cost of Improvement × (CII for the year of sale/CII for the year of improvement)
Indexed Cost of Improvement = Rs. 28 lakhs × (317/100) = Rs. 88,76,000

Capital Gain:
To calculate the capital gain, deduct the indexed cost of acquisition and the indexed cost of improvement from the sale proceeds.
Capital Gain = Sale Proceeds - (Indexed Cost of Acquisition + Indexed Cost of Improvement)
Capital Gain = Rs. 70 lakhs - (Rs. 7,92,500 + Rs. 88,76,000)
Capital Gain = Rs. -26,68,500 (Assuming the indexed cost is higher than the sale proceeds)

Since the calculated capital gain is negative, it means there is no capital gain tax applicable in this case. This is because the sale proceeds are less than the indexed cost of acquisition and improvement.

Ans: Yes, capital gains will be attracted depending upon the cost at which she purchased the land.

Method to calculate capital gains is Sales consideration - expenses in relation to sales - indexed cost of acquisition.

Please take your CAs advice before moving ahead.

Ans: 01. Individual share of LTCG (Sale price - Cost of plot) will be taxed, as under :
(a). Tax Rate 12.50% without indexation OR
(b). Tax Rate of 20% in case of Indexation.
You may calculate your tax liability under both options & may opt for the tax regime, where tax liability is minimum.
Most welcome for any further clarifications. Thanks.