This is calculated using Cost Inflation Index (CII). In cases where the property is bought before 2001, the IT laws allow you to adopt the fair market value as of 1^st April 2001.  It may be noted that this fair market value cannot be higher than the circle rate/guidance value as of this date.

The CII of 2001-02 is taken as base value of 100 and this value for current FY is 331.

The Indexed Cost of Acquisition will thus be = 331/100*(FMV as of 1^st April, 2001). 

If you have spent for any maintenance etc., you can add to this and claim.

The capital gain tax will be 20% of the Sale value minus Indexed Cost of Acquisition.

Surcharge and Cess will be as applicable on the above tax computation.

3. How to invest this money and in what type of instruments so that tax can be saved?

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: Your thought process is right as far as indexation is concerned. It will be 3.63X to be precise.

The deductible expenses are any sale related expenses like brokerage etc from capital gains tax computation.

Exact calculations will need to be done in consultation with your CA.

Ans: Assuming sales consideration is 22 crs then you will get the exemption to the extent of 1/22.

Ans: Hello;

12.5% on 1.1479 Cr: 14.34 L

OR

20% on 82.82 L (Gain arrived after deducting Indexed cost of acquisition from sale price): 16.56 L

Kindly consult a CA for detailed working and suitable guidance.