My Father has purchase a property for rs 115000 in year 1994.at Bhayandar west district Thane at Maharashtra state.and my Father did this registration in amnesty scheme in year 2008.and after that my Father died in year 2014.and after I made a release deed transfer this property in my name (son). I sold this residential property in June 2024for rs 30lakh.in this case I want to know the status of capital gain is there or not I also want to know if I sell this residential property .I can purchase ashop or not. If I want to save capital gain what is the solution to save my tax. Thanking u.

Ans: For taxation on redevelopment, there was amendment from 1.4.2018. Before said amendment, when property is transferred to builder for development, capital gain chargeable to tax. I understand that you have not paid any tax in the year in which property is transferred to builder, accordingly, it is advised to take proper consultancy from tax consultant.

Ans: Hello,

I understand your situation and I'm here to help. Based on the details you've provided and the current tax laws in India, here's what you need to know:

1) The amount you've spent on acquiring the housing plot can indeed be considered for the utilization of your capital gain. As per the Income Tax Act, if you reinvest the capital gains from the sale of a property in buying a new property or constructing a new house, you can claim tax exemption on the capital gains.

2) The amount you need to keep in the Capital Gain Account Scheme (CGAS) would be the remaining amount after deducting the cost of the plot from the capital gain. In your case, if you've already spent Rs. 11.00 Lakh on the plot, you would need to keep Rs. 4.00 Lakh (Rs. 15.00 Lakh - Rs. 11.00 Lakh) in the CGAS. This amount should be utilized for the construction of the house within the specified time period, which is 3 years from the date of sale of the original property.

Ans: 01. As described in your question, you might have received Rs.16.00 lakhs (1/6 shares of Rs.96.00 lakhs), in your account.
02. Keeping in view the cost details which have mentioned, LTCG would just be negligible (may be less than Rs.1.00 lakh in your case). You may pay tax on the same & go ahead, instead of involving in any sort of litigations.
Most welcome for any further clarifications. Thanks.

Ans: let’s work through the details of your capital gain calculation step by step and discuss the tax implications. Here’s a detailed answer to your query:

Calculating Capital Gains on Sale of Property
Understanding Key Terms
Cost of Acquisition: The original price paid for the property, which is Rs. 2 lakh in 1994.
Indexed Cost of Acquisition: The cost of acquisition adjusted for inflation using the Cost Inflation Index (CII).
Sale Price: The price at which the property was sold, which is Rs. 30 lakh in 2024.
Cost Inflation Index (CII)
The Cost Inflation Index (CII) is used to adjust the purchase price of the property for inflation. Here are the relevant CII values:

1994-95: 259
2008-09: 582 (year of registration under amnesty scheme)
2014-15: 1024 (year of your father's death)
2023-24: 348 (assumed latest CII for calculation purposes)
Step-by-Step Calculation
Determine the Year of Acquisition for Indexation Purposes:

Since the property was registered under the amnesty scheme in 2008, we use 2008 as the base year for indexation purposes.
Calculate Indexed Cost of Acquisition:

The original cost of acquisition (in 1994) is Rs. 2 lakh.
The CII for 2008-09 is 582, and for 2023-24, it is 348.
Indexed Cost of Acquisition = (Cost of Acquisition) * (CII of the year of sale / CII of the year of acquisition).
Indexed Cost of Acquisition = Rs. 2,00,000 * (582 / 348).
Calculate Capital Gain:

Sale Price: Rs. 30 lakh.
Capital Gain = Sale Price - Indexed Cost of Acquisition.
Calculations
Indexed Cost of Acquisition
Indexed Cost of Acquisition = Rs. 2,00,000 * (582 / 348) = Rs. 2,00,000 * 1.6724 = Rs. 3,34,480

Capital Gain
Capital Gain = Sale Price - Indexed Cost of Acquisition

Capital Gain = Rs. 30,00,000 - Rs. 3,34,480 = Rs. 26,65,520


Tax Implications
Capital gains tax on the sale of a residential property is typically categorized as long-term capital gains (LTCG) since the property was held for more than three years. The LTCG tax rate is usually 20% with indexation benefits. Here's a more detailed breakdown:

Long-Term Capital Gains Tax (LTCG):

The LTCG on the sale of a residential property held for more than three years is taxed at 20% after indexation.
Calculation of LTCG Tax:

LTCG = Rs. 26,65,520
LTCG Tax = 20% of Rs. 26,65,520 = Rs. 5,33,104
Reducing Tax Liability
To reduce your tax liability, you can consider the following options:

Investing in Capital Gains Bonds:

You can invest up to Rs. 50 lakh in specified bonds under Section 54EC to save on LTCG tax. These bonds have a lock-in period of five years and provide a safe investment option with tax benefits.
Investing in Residential Property:

Under Section 54, you can reinvest the capital gains in purchasing or constructing another residential property. This needs to be done within two years of the sale of the property or within three years if constructing a new house. This exemption is available if the new property is not sold within three years from the date of purchase or construction.
Setting Off Losses:

If you have any other capital losses, you can set them off against these gains to reduce your taxable amount.
Steps to Follow
Calculate Your Exact Tax Liability:

Use the above formulas to compute the exact LTCG and the corresponding tax.
Plan for Tax-Saving Investments:

Decide whether to invest in capital gains bonds or a new residential property to save on LTCG tax.
Consult a Certified Financial Planner (CFP):

A CFP can provide personalized advice tailored to your financial goals. They can help in selecting the right tax-saving investments and strategies to optimize your tax liability.
Final Insights
To summarize, you have made a significant capital gain of Rs. 26,65,520 from the sale of your property. This gain will be subject to long-term capital gains tax, typically at a rate of 20% after indexation. However, by strategically planning your investments, you can reduce your tax liability significantly. Consider investing in Section 54EC bonds or another residential property to avail of tax exemptions. Regularly consult with a Certified Financial Planner to ensure your financial decisions align with your long-term goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Ans: When you sell an ancestral property, you need to calculate the capital gains to determine your tax liability. Since your property was acquired in 1950, the cost of acquisition will be indexed for inflation, and you'll calculate the capital gains based on the fair market value (FMV) as of 1st April 2001.

1. How the Capital Gain Tax Will Be Computed?
Steps to Compute Capital Gains:

Fair Market Value (FMV) as of 1st April 2001: Since the property was purchased in 1950, you can choose the FMV as of 1st April 2001 as your cost of acquisition. This is crucial for calculating the capital gains accurately.

Indexed Cost of Acquisition: The FMV as of 1st April 2001 is adjusted for inflation using the Cost Inflation Index (CII) to arrive at the indexed cost of acquisition. The formula is:

Indexed Cost of Acquisition = (FMV as of 1st April 2001) x (CII of Year of Sale / CII of 2001-02)

Calculation of Capital Gains: The capital gains are calculated as:

Capital Gains = Sale Value - Indexed Cost of Acquisition - Any Expenses on Transfer

Tax Rate: Since the sale occurred in August 2024, the new capital gain tax rule applies at 12.5%. You cannot choose the old capital gain tax rule as it is not applicable to sales made after 1st April 2024.

Example:

Let's assume the FMV as of 1st April 2001 is Rs. 10 lakh, and the property was sold for Rs. 1 crore in August 2024. The CII for 2001-02 is 100, and the CII for 2024-25 is 348 (hypothetical for illustration).

Indexed Cost of Acquisition = Rs. 10 lakh x (348/100) = Rs. 34.8 lakh

Capital Gains = Rs. 1 crore - Rs. 34.8 lakh = Rs. 65.2 lakh

Capital Gains Tax = 12.5% of Rs. 65.2 lakh = Rs. 8.15 lakh approximately

2. Is It Mandatory to Get FMV as on 1.4.2001 from Govt Registered Valuer?
Importance of FMV from Registered Valuer:

Accuracy and Compliance: It is highly recommended to get the FMV as of 1st April 2001 from a government-registered valuer. This ensures that the FMV used in your capital gains calculation is accurate and in compliance with the Income Tax Department's guidelines.

Documentary Evidence: In case of any scrutiny by the Income Tax Department, a valuation report from a registered valuer will serve as strong documentary evidence, safeguarding you against any disputes regarding the FMV.

Mandatory?

Yes, for Precaution: While it may not be legally mandatory to get the FMV from a registered valuer, it is strongly advised to do so to avoid potential issues with tax authorities. Without it, the Income Tax Department may question the FMV you have used, leading to complications.
3. How to Claim 1% TDS Deducted on Sale Value?
Understanding TDS Deduction:

Section 194-IA: When a property is sold, the buyer is required to deduct 1% TDS on the sale value if the sale consideration exceeds Rs. 50 lakh. This TDS is deducted at the time of sale and deposited with the government.
Claiming TDS Credit:

Form 26AS: Ensure that the TDS deducted is reflected in your Form 26AS, which is a consolidated tax statement issued by the Income Tax Department. This form shows all TDS credited to your PAN.

Filing Income Tax Return (ITR): While filing your ITR, you can claim the TDS deducted against your total tax liability. The 1% TDS will be adjusted against your total tax liability, and if your total tax liability is less than the TDS, you can claim a refund.

TDS Certificate: The buyer should provide you with a TDS certificate (Form 16B) as proof of the TDS deducted. Ensure you have this certificate when claiming the TDS credit.

4. Can I Choose Between Old and New Capital Gain Tax Rule?
Applicability of Tax Rule:

New Capital Gain Tax Rule: Since your property was sold in August 2024, the new capital gain tax rule is applicable. The new rule imposes a flat rate of 12.5% on long-term capital gains for property sales made after 1st April 2024.

No Option to Choose: You do not have the option to choose the old capital gain tax rule, as it is only applicable to property sales made before 1st April 2024. The government has mandated the new tax rule for all property sales post this date.

Reinvestment to Save on Capital Gains Tax
Section 54:

Reinvestment in New Property: To save on capital gains tax, you can reinvest the capital gains in purchasing a new residential property. Under Section 54 of the Income Tax Act, if you reinvest the capital gains within two years from the date of sale, you can claim an exemption from capital gains tax.

Capital Gains Account Scheme (CGAS): If you are unable to reinvest the capital gains before the filing of your ITR, you can deposit the capital gains in a Capital Gains Account Scheme (CGAS) with a bank. This allows you to claim the exemption while you decide on the reinvestment.

Time Limits: You must reinvest the capital gains within two years (for buying) or three years (for constructing) a new property to avail of the exemption under Section 54.

Final Insights
Selling ancestral property involves various tax implications. By understanding how capital gains are calculated, getting an FMV from a registered valuer, and claiming TDS, you can efficiently manage your tax liability. While the new capital gain tax rule at 12.5% applies to your sale, you can reinvest the gains in a new property to claim an exemption under Section 54. Always consider consulting with a Certified Financial Planner to ensure all aspects are covered and compliance is maintained.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in