Help, I sold agricultural land in Mangaon for 50 lakhs. What's the capital gains tax I need to pay?

Ans: I can't calculate your exact capital gains tax on the land sale as it depends on several factors not mentioned yet. However, I can explain how it's generally calculated in India and provide some guidance:

Factors affecting your capital gains tax:

Holding period: There are two types of capital gains tax on land - long-term capital gains (LTCG) and short-term capital gains (STCG).
LTCG applies if you held the land for more than 24 months. It benefits from an indexation mechanism that adjusts the purchase price for inflation, reducing your taxable gains.
STCG applies if you held the land for 24 months or less. The tax is calculated on the difference between the selling price and the purchase price without indexation.
Purchase price: This is the original price you paid for the land along with any documented improvement costs.
Sale price: This is the amount you received for the land sale minus any selling expenses.
Tax Rates:

LTCG: Currently, LTCG on land is taxed at 20% with indexation. However, you can save tax on LTCG by reinvesting the gains in specific options like new residential property or government bonds under relevant sections of the Income Tax Act.
STCG: STCG on land is taxed at a flat rate of 20% without indexation.
Recommendation:

To determine your exact capital gains tax liability, it's best to consult a chartered accountant (CA) or a tax advisor. They can consider all the factors mentioned above and calculate the tax based on your specific situation. They can also advise you on potential tax saving options available under the Income Tax Act for LTCG.

Ans: You sold a property in June 2024 for Rs 30 lakh. It was bought for Rs 1,15,000 in 1994. Let's evaluate if there's a capital gain.

Indexed Cost of Acquisition

The property purchase cost will be adjusted for inflation. This is called the Indexed Cost of Acquisition (ICA). The ICA is calculated using the Cost Inflation Index (CII) provided by the Income Tax Department.

Calculating Indexed Cost

Calculate the ICA to understand your capital gain. Since we won't use specific formulas here, you can consult a Certified Financial Planner to get the precise ICA value. This helps in determining the exact capital gain.

Long-Term Capital Gains (LTCG)

Since you held the property for more than 24 months, it is classified as a long-term asset. The profit from the sale, after adjusting for the ICA, is your Long-Term Capital Gain (LTCG).

Tax on LTCG

LTCG is taxed at 20% with indexation benefits. However, there are ways to save on this tax.

Investing in Another Property

You can save on capital gains tax by investing in another residential property. This is covered under Section 54 of the Income Tax Act. If you buy a residential house within two years or construct one within three years, you can claim exemption.

Investing in Capital Gains Bonds

Another option is to invest in Capital Gains Bonds under Section 54EC. These bonds have a lock-in period of five years and provide tax exemption on the gains. The maximum investment limit in these bonds is Rs 50 lakh.

Purchasing a Shop

Buying a shop will not provide capital gains tax exemption under Section 54. The exemption is only for residential properties. If you sell a residential property, you must reinvest in a residential property to save on capital gains tax.

Other Options to Save Tax

Residential Property: Invest in another residential property within two years.

Construction: Construct a new house within three years.

Capital Gains Bonds: Invest in these bonds within six months of the sale.

Final Insights

To save on capital gains tax, reinvest in a residential property or Capital Gains Bonds. Purchasing a shop will not help in saving tax on capital gains. Consulting a Certified Financial Planner can help you navigate these options efficiently.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: 01. In absence of exact figures, it is not possible to calculate your Capital Gains Tax. However, following details may help you to assess your tax liability.
02. Under present provisions of Income Tax Act, you may opt any of the options (Long Term
Capital Gains), as under :
(a). Tax Rate 12.50% without indexation or
(b). Tax Rate of 20% with Indexation.
03. You may calculate your tax liability under both options & may opt for the tax regime, where tax liability is minimum.
04. Most welcome for any further clarifications. Thanks.