Planning to sell my property: How much capital gain tax will I pay?

Ans: Hi
You may have a long term capital gain of about Rs. 6.70 Lakhs. Suggestions to avoid paying any tax on this gain would be to pay towards the construction of the new house. This would mean that you may need to sell your house before you take possession of the new house in December 2023 and use the sale consideration to pay to the builder to the extent of approx Rs. 6.70 Lakhs to make it eligible as reinvestment in a new under construction property. This cannot be the other way round i.e. you cannot pay full amount to the builder and take possession and thereafter sell the old house.

If you need the house to stay till the possession of the new property then you could try for a rental arrangement with the buyer of your old house.

Ans: To calculate your capital gain, you'll first need to determine the cost of acquisition and the cost of improvement.

Cost of Acquisition:
The property was bought in 1994 for 2 lakh.

Cost of Improvement:
You spent around 10 lakh on interiors and renovation.

Indexed Cost of Acquisition:
To adjust for inflation, calculate the indexed cost of acquisition using the Cost Inflation Index (CII) for the year of purchase and the year of sale.

Capital Gain = Selling Price - (Indexed Cost of Acquisition + Cost of Improvement)

Once you subtract the indexed cost of acquisition and the cost of improvement from the selling price, you'll get your capital gain. Consult a tax advisor for accurate calculations and implications.

Ans: Calculation of Capital Gain

1. Determine the Purchase Price:

You purchased the property for Rs. 4,50,000.

2. Determine the Selling Price:

You sold the property for Rs. 19,45,000.

3. Calculate the Capital Gain:

Capital gain is the difference between the selling price and the purchase price.

4. Adjust for Inflation:

Since the property was held for more than two years, it qualifies as a long-term capital asset. To calculate the long-term capital gains (LTCG) accurately, adjust the purchase price for inflation using the Cost Inflation Index (CII). This adjustment helps account for the inflation impact over the holding period.

5. Long-Term Capital Gains Tax:

For properties held long-term, the LTCG tax rate is 20% with indexation benefits. This means you pay tax on the gains after adjusting for inflation.

Detailed Calculation:

Purchase Price: Rs. 4,50,000
Selling Price: Rs. 19,45,000
Capital Gain: Selling Price - Purchase Price = Rs. 19,45,000 - Rs. 4,50,000 = Rs. 14,95,000
After adjusting the purchase price for inflation using the CII, calculate the actual taxable gain. The tax is computed at 20% on the adjusted gain.

Final Insights

You have made a significant gain on your property. The total capital gain before indexation is Rs. 14,95,000. After adjusting for inflation, the taxable gain might be lower. The tax liability will be 20% on the adjusted gain. It’s advisable to consult a Certified Financial Planner or a tax expert to ensure accurate calculations and to explore possible exemptions or deductions that might be available to you.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in