I have booked a under construction flat in May 2022 for 2.80 crs inclusive of GST and stamp duty likely possession in December 2023, Flat is in joint name with my wife on 50:50 basis. I have availed joint Bank loan of 2.10 crores which is partially disbursed approx 1.76 crores up to now. balance will be disbursed before possession. I will be selling by old flat in January 2024 which is in my individual name, which I purchased in July 2017 for 92.50 lacs inclusive of stamp duty, approx selling price will be 1.25 crores. This flat is also on loan of 54 lakhs outstanding .What will be the capital gain against this and can this be setoff against the new flat? Difference amount 1.25 crores(sale price) less 54 lakhs (Bank Loan) balance amount of 71 lakhs I might pay against the new bank loan of 2.10 crores which will reduce the loan to 1.39 crores. Please guide how to go to save the Capital gain tax.

Ans: Dear Pramod KS,

Thank you for asking about the capital gains tax for your flat's sale. I'll try to simplify the explanation and give you an idea of the tax and how to reduce it. Keep in mind that the accuracy of the answer depends on the details you've provided.

You sold the flat for Rs 122 lakh in March 2023. You made staggered payments for it, totaling Rs 55 lakh, from 14/06/2010 to 25/06/2013. To find the capital gains, we need to adjust the purchase cost for inflation using the Cost Inflation Index (CII) for each payment year.

Since the payments were made over multiple years, we must adjust the purchase cost for each payment separately. For simplicity, let's assume you made equal payments of Rs 18,33,333 each in 2010, 2011, and 2013. The CII for 2010-11 is 167, for 2011-12 is 184, and for 2012-13 is 200. The CII for the year you sold the flat (2022-23) is 331.

We'll adjust each payment's purchase cost like this:
Adjusted Purchase Cost = (Payment * CII for the year of sale) / CII for the year of payment

For the 2010 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 167 = 36,19,278 (approximately)

For the 2011 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 184 = 32,94,804 (approximately)

For the 2013 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 200 = 30,18,000 (approximately)

Now, add up the adjusted purchase costs:
Total Adjusted Purchase Cost = 36,19,278 + 32,94,804 + 30,18,000 = 99,32,082 (approximately)

Now we can find the capital gain:
Capital Gain = Sale Price - Total Adjusted Purchase Cost
Capital Gain = 1,22,00,000 - 99,32,082 = 22,67,918 (approximately)

Since you owned the property for more than 36 months, this is a Long-Term Capital Gain (LTCG). The tax rate is 20% after considering inflation.

Capital Gain Tax Payable = 20% of Capital Gain
Capital Gain Tax Payable = 0.20 * 22,67,918 = 4,53,584 (approximately)

You and your spouse jointly own the property, so each of you will pay tax on your share of the capital gain, approximately Rs 2,26,792 each.

To reduce the capital gains tax, consider these options:

Invest the capital gain in special bonds under Section 54EC of the Income Tax Act. These have a 5-year lock-in period and must be invested within 6 months after selling the property.
If neither you nor your spouse owns more than one residential property at the time of the sale, you can use the capital gains to buy or build a new house within specific time limits under Section 54 of the Income Tax Act. You must buy the new property within 2 years or build it within 3 years from the sale date.
Remember that these options have certain rules and limits. It's a good idea to talk to a tax professional to discuss your specific situation, calculate the exact adjusted purchase costs and capital gains, and follow the correct rules. I hope this information helps.

If you need assistance with the exact calculations based on the specific payment amounts and dates, a tax professional can guide you through that process. They can also help you understand the various exemptions and investment options available to minimize your tax liability further.

I hope this information has been helpful in clarifying the capital gains tax and potential ways to reduce it.

Best regards,
Hardik Parikh

Ans: Hi Alok
Buying a plot is not considered as reinvestment and eligibility is on buying or constructing a residential house.

In this case if you construct a house on the plot then you could map the capital gains from the sale of the ancestral house against the cost of construction of the house on the plot.

Also, as you have sold the house in March 2023, you would need to open a Capital Gain Accounts Scheme (CGAS) account with any nationalized bank on or before the due date for filing your tax return. The deposit of the capital gain amount in the CGAS account would be treated as reinvestment for the moment.

You need to note that this CGAS account amount has to be utilized for construction within 3 years from the date of sale of the ancestral house.

In case you are not depositing the amount in CGAS account or reinvesting in any eligible assets before filing tax return (of course before due date) then you would need to pay tax on the capital gain portion

Ans: Hi
The approximate Long Term Capital Gain would be about Rs. 22.45 Lakh. Subject to all conditions of carry forward of losses being met, the loss of Rs. 23 Lakh brought forward could be set off against the long term capital gain