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Young Business Owner in Apmc Partnership Seeks Capital Gains Tax Guidance

T S Khurana

T S Khurana   |500 Answers  |Ask -

Tax Expert - Answered on Feb 19, 2025

A certified management accountant since 1993, T S Khurana is a fellow member of The Institute of Cost Accountants of India. His areas of expertise are income tax, specifically litigation cases, and GST.

Since the last 21 years, he has also been providing expert advice on financial matters, including investments and diversification of funds, and wealth building in the long term to his clients.
He believes that investment in real estate is the safest way for better returns and wealth generation over a period of time.

A former chairman of the Chandigarh Chapter of Institute of Cost Accountants of India, T S Khurana has also served as member of its technical committee.... more
Asked by Anonymous - Feb 18, 2025Hindi
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My father started a business with his brother in XYZ name and got a Gala in Apmc in the same name where they shared 50-50% share in both business n property after my fathers death i was admitted in as a partner with same ratio after few years my uncle passed in his share to his son so as of now i and my cousin brother are partner the proerty was purchased 296200 in the year 1995 along with registration so 148100 was the share of each and now i want to leave the partnership and also to let go of my share in the premises for which my exixting partner will pay me 3750000 on or before 31.3.2025 I wanted to know how much capital gain tax will be for me if i do not invest secondly can i invest in residential property I would appreciate if guided Thanking you in anticipation

Ans: 01. Considering receipt of Rs.37,50,000.00 as Sale of your share in property/ premises, it would be LTCG in this case.
02. Amount of LTCG without Indexation is Rs.36,02,000.00 (Sale Rs.37,50,000.00 Less Cost Rs.148,100.00). Tax @ 12.50% is Rs.4.50 lakh app.
02. Amount of LTCG with Indexation is Rs.32.12 lakhs (Sale Rs.37,50,000.00 Less Cost Rs.5,37 lakhs {Index 100/363}). Tax @ 20.00% is Rs.6.40 lakh app.
03. You may go for the first option & plan your tax liability. You can invest in residential property to save LTCG tax.
04. Other option to save tax is to purchase Capital Gain bonds. However, investment in Real Estate is always better than other investment.
Most welcome for any further clarifications. Thanks.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |9852 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 19, 2024

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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: 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

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