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Sold 2023 flat for 85 lakhs, bought in 2010 for 27: How to calculate long-term capital gain tax?

Ramalingam

Ramalingam Kalirajan  |7968 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 27, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Abhay Question by Abhay on Aug 16, 2024Hindi
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Hello sir, I booked flat in 2010, but got the possession in june 2023 and got registered , the initial value is 27lacs on registered paper. I sold the same for rs 85 lacs on june 2023. how the long term capital agin will be claculated . and whta should i do to sav ethe long term capital gain tax. if applicable.

Ans: 1. Calculation of Long-Term Capital Gains
Step 1: Determine the Sale Price
Sale Price: Rs 85 lakhs (amount for which the property was sold)
Step 2: Determine the Cost of Acquisition
Initial Purchase Price: Rs 27 lakhs (as per registered document)
Step 3: Adjust for Inflation
To calculate LTCG, the cost of acquisition is adjusted for inflation. This adjustment is done using the Cost Inflation Index (CII) provided by the Income Tax Department.

CII for the Year of Purchase (2010): Refer to the index published by the government for the year 2010.
CII for the Year of Sale (2023): Refer to the index for 2023.
Step 4: Calculate Indexed Cost of Acquisition
Use the formula:


Step 5: Calculate the Long-Term Capital Gains
LTCG
=
Sale Price

Indexed Cost of Acquisition
LTCG=Sale Price−Indexed Cost of Acquisition

2. Tax Implications
As it is sold before July 2024, the long-term capital gains are taxed at 20% with indexation benefits. Additional tax benefits may apply depending on the investment options you choose.

3. Saving on Long-Term Capital Gains Tax
Investment in Residential Property
If you reinvest the gains into another residential property, you can claim an exemption under Section 54 of the Income Tax Act.

Conditions: The new property must be purchased within two years of selling the old property or constructed within three years. The exemption is applicable on the amount of capital gains reinvested.
Investment in Capital Gains Bonds
You can invest up to Rs 50 lakhs of capital gains in specified bonds under Section 54EC to claim an exemption. These bonds must be held for a minimum period of five years.

Eligible Bonds: The bonds are issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
Investment in Rural Development Bonds
Under Section 54EC, you can also invest in rural development bonds. These bonds also have a lock-in period of five years.

Reinvestment in Residential Property
To fully utilize the exemption, reinvest the entire long-term capital gains amount into a new residential property. Ensure compliance with the time limits mentioned.

4. Final Insights
Here’s a summary of actions you can take:

Calculate Indexed Cost: Use the CII to adjust the cost of acquisition for inflation.
Calculate LTCG: Determine the gain by subtracting the indexed cost from the sale price.
Explore Exemptions: Consider reinvesting the gains in a new residential property or capital gains bonds to reduce or eliminate tax liability.
Implement these strategies to manage your tax liability effectively. Always ensure you comply with the conditions specified under the Income Tax Act for exemptions.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
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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Remember, the JEE exam and passing engineering from 1st tier engg college can't be a parameter of success in life If you look nearby, many people are successful, but none of them have completed their engineering from 1st tier college or cleared JEE like competitive examinations. You tried your best but failed to crack JEE in 1 or 2 attempts. No problem. You are not alone in this worst situation (as per your thinking)! You also gave the MHT-CET and got a good percentile (90.2). You could be admitted to a good private engg college with this percentile in Maharashtra. But why you did not take this decision is not clear. I would like to suggest you, please drop the idea of appearing for JEE this time and clear any state-level engineering entrance examination. Take admission to a reputed private engineering college and start you journey in a fresh mood. For your reference, there are 10 engineering colleges in India where you can get admission without a JEE score. To know more details, please copy and paste the following link into your browser- https://timesofindia.indiatimes.com/education/news/10-engineering-colleges-in-india-for-pursuing-btech-without-jee-main-2025-score/articleshow/118162587.cms.
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Do not get stressed at this stage. Even though his score is 91 percentile in 1st attempt, he can do well in 2nd attempt. But from the safer side, ask him to appear in the Karnataka State Engineering Entrance Examination also. Even if he scores less in JEE on 2nd attempt, he may good college via the state entrance examination in CSE or aeronautical engineering as per your wish. For your reference, there are 10 colleges in India where you can get admission without a JEE score. To know more details, please copy and paste the following link into your browser- https://timesofindia.indiatimes.com/education/news/10-engineering-colleges-in-india-for-pursuing-btech-without-jee-main-2025-score/articleshow/118162587.cms.
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Till then, ask him to focus only on two engineering entrance exams. Best of luck to your son for upcoming exams.

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