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Sanjeev Govila  |192 Answers  |Ask -

Financial Planner - Answered on Jul 28, 2023

RATAN Question by RATAN on Jul 28, 2023

I have some queries regarding tax on sale of my property which I need to show in my Income Tax return in FY-2023-24. I had purchased a flat in Kolkata at a total cost of 8.50 lacs [including registration cost] and registration was done in April, 2004. I had sold the said flat in May,2023 at Rs.31 lacs. My queries are :- 1. Do I need to pay Capital Gain tax on the sale of this flat ? 2. How much tax do I need to pay ? 3. How to show this capital gain income and tax in my Income Tax retirn next year ? Please advise. Regards, Ratan K. Saha

Ans: You need to understand the following things about taxation of your flat:-
1. You have earned a profit (called capital gains in this context) on the sale of your house. So tax is due.
2. However, tax will not simply be 31L – 8.5L. The Govt gives you an advantage of inflation over the years which increases your purchase cost through a process called ‘Indexation’, thus decreasing your tax. Please google and read up on it, or contact a good CA or a financial advisor.
3. You also get credit for registration and stamp duty charges, brokerages paid as also any improvements done in the house of a permanent nature.
4. Please read up on Income Tax Section 54 which also gives out how you can save tax on your final capital gains arrived at.
5. The entire calculations and sale/purchase details have to be shown in the ITR. Most probably you will be filling ITR-2 for this next year but please ascertain the same when you are about to file the tax since rules keep changing.
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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Mihir Tanna  |580 Answers  |Ask -

Tax Expert - Answered on Sep 29, 2022

Dear Mr Mihir, I would like to know the following points: I bought a flat in Thane - 400603 @ rs.one lakh in Dec.'1983 & would like to sell now this year 2022 @ rs.64 lakhs. Pl. let me know the amount of Property Gain Tax (Long Term) which I have to pay now considering 'Ready Reckoner Rate' at Thane - 400603 area or how to calculate the same to get taxable amount? Also can I (as Sr. Ctzn.) get a tax exemption as I already bought (in joint ownership where my wife is 1st owner) another flat @ rs.75 lakh in Thane in Nov '2020? May I invest taxable amount (if any) in Govt. Bonds like NHAI / REC / PFC to get tax exemption & what interest I will get for how many yrs. or else if it will be better to invest my selling amount in good Flexi Cap Mutual Funds for 5 years after paying entire taxable amount to recover the same? Will appreciate your prompt feedback in detail.
Ans: Capital gain on sale consideration will be reduced by Indexed cost of acquisition and allowable expenses incurred on transfer. You have to calculate indexed cost of acquisition by applying Cost Inflation Index as per prescribed formula on cost of acquisition.

For cost of acquisition, you may take actual cost or fair market value of the asset, as on 01.04.2001.

In case of land and building, fair market value on 01.04.2001 cannot exceed stamp duty value as on 01.04.2001.

Exemption is available if amount of capital gain is invested by purchasing a new residential house within one year before or within 2 years after the date of transfer of the residential house.

As you have already got possession of new property in November 2020, you will not be eligible for exemption.

Decision of investment in specified bonds or acquiring tax mutual funds can be taken after considering several factors like risk appetite, amount of tax liability on capital gain, availability of surplus fund etc.


Hardik Parikh  |106 Answers  |Ask -

Tax, Mutual Fund Expert - Answered on Apr 05, 2023

sir,I booked a flat on 14.6.2010 ( tentative cost Rs48.45 lakh)on self funding basis,based on stages of construction. Allottmeng letter issue by builder on 21.7.2010. possesson given 25.06.2013 against December 2013 with final cost of Rs.55 lakh app. excl.shifting chges. Flat was sold in March 2023 for Rs 122 lakh,excl brokerage,society dues,misc dues,TDS etc etc. I & my spouse both are now senior citizens. please advise the capital gain tax payable and how to reduce the same.this property is joint one with my spouse.shall appreciate ur early response...rgds....pramod KS.
Ans: Dear Pramod KS,

Thank you for asking about the capital gains tax for your flat's sale. I'll try to simplify the explanation and give you an idea of the tax and how to reduce it. Keep in mind that the accuracy of the answer depends on the details you've provided.

You sold the flat for Rs 122 lakh in March 2023. You made staggered payments for it, totaling Rs 55 lakh, from 14/06/2010 to 25/06/2013. To find the capital gains, we need to adjust the purchase cost for inflation using the Cost Inflation Index (CII) for each payment year.

Since the payments were made over multiple years, we must adjust the purchase cost for each payment separately. For simplicity, let's assume you made equal payments of Rs 18,33,333 each in 2010, 2011, and 2013. The CII for 2010-11 is 167, for 2011-12 is 184, and for 2012-13 is 200. The CII for the year you sold the flat (2022-23) is 331.

We'll adjust each payment's purchase cost like this:
Adjusted Purchase Cost = (Payment * CII for the year of sale) / CII for the year of payment

For the 2010 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 167 = 36,19,278 (approximately)

For the 2011 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 184 = 32,94,804 (approximately)

For the 2013 payment:
Adjusted Purchase Cost = (18,33,333 * 331) / 200 = 30,18,000 (approximately)

Now, add up the adjusted purchase costs:
Total Adjusted Purchase Cost = 36,19,278 + 32,94,804 + 30,18,000 = 99,32,082 (approximately)

Now we can find the capital gain:
Capital Gain = Sale Price - Total Adjusted Purchase Cost
Capital Gain = 1,22,00,000 - 99,32,082 = 22,67,918 (approximately)

Since you owned the property for more than 36 months, this is a Long-Term Capital Gain (LTCG). The tax rate is 20% after considering inflation.

Capital Gain Tax Payable = 20% of Capital Gain
Capital Gain Tax Payable = 0.20 * 22,67,918 = 4,53,584 (approximately)

You and your spouse jointly own the property, so each of you will pay tax on your share of the capital gain, approximately Rs 2,26,792 each.

To reduce the capital gains tax, consider these options:

Invest the capital gain in special bonds under Section 54EC of the Income Tax Act. These have a 5-year lock-in period and must be invested within 6 months after selling the property.
If neither you nor your spouse owns more than one residential property at the time of the sale, you can use the capital gains to buy or build a new house within specific time limits under Section 54 of the Income Tax Act. You must buy the new property within 2 years or build it within 3 years from the sale date.
Remember that these options have certain rules and limits. It's a good idea to talk to a tax professional to discuss your specific situation, calculate the exact adjusted purchase costs and capital gains, and follow the correct rules. I hope this information helps.

If you need assistance with the exact calculations based on the specific payment amounts and dates, a tax professional can guide you through that process. They can also help you understand the various exemptions and investment options available to minimize your tax liability further.

I hope this information has been helpful in clarifying the capital gains tax and potential ways to reduce it.

Best regards,
Hardik Parikh

Tejas Chokshi  |126 Answers  |Ask -

Tax Expert - Answered on May 29, 2023

I have purchased a land of Rs. 2.5 Lacs in 2001 and start constructions on that in 2005 with 2 floors and also completed the constructions with in 5 months. Taken a loan from DHFL of Rs. 5 Lac and also repaid in next 2-3 years. Just two years back also extended one floor. Now there is 3 complete floor and one half floor is there. If today I sell this property (which is approx 80 sqyds plot size) in 70 lacs then how much capital gain tax (if applicable) I need to pay. Pl. also note that we don't so much documents for constructions related and total exp. is around 25-30 Lacs on that.
Ans: To calculate the capital gains tax on the sale of your property, we need to consider the acquisition cost, the cost of improvement, and the sale proceeds. Let's break down the calculations:

Acquisition Cost:
The acquisition cost is the amount you paid for the land in 2001, which is Rs. 2.5 lakhs.

Cost of Improvement:
The cost of improvement includes the expenses incurred for construction and any subsequent additions or extensions made to the property. In this case, it includes the construction of the initial two floors, the extension of one floor, and any other related expenses. You mentioned that the total expenses were around 25-30 lakhs. Let's assume the cost of improvement is Rs. 28 lakhs.

Indexed Cost of Acquisition and Improvement:
To adjust the acquisition cost and cost of improvement for inflation, we need to calculate the indexed cost. The indexed cost is calculated using the Cost Inflation Index (CII) provided by the Income Tax Department. The CII for the relevant years can be found on the Income Tax Department's website.

Let's assume the CII for the year 2001-2002 was 100 and for the current financial year, it is 317.

Indexed Cost of Acquisition = Acquisition Cost × (CII for the year of sale/CII for the year of acquisition)
Indexed Cost of Acquisition = Rs. 2.5 lakhs × (317/100) = Rs. 7,92,500

Indexed Cost of Improvement = Cost of Improvement × (CII for the year of sale/CII for the year of improvement)
Indexed Cost of Improvement = Rs. 28 lakhs × (317/100) = Rs. 88,76,000

Capital Gain:
To calculate the capital gain, deduct the indexed cost of acquisition and the indexed cost of improvement from the sale proceeds.
Capital Gain = Sale Proceeds - (Indexed Cost of Acquisition + Indexed Cost of Improvement)
Capital Gain = Rs. 70 lakhs - (Rs. 7,92,500 + Rs. 88,76,000)
Capital Gain = Rs. -26,68,500 (Assuming the indexed cost is higher than the sale proceeds)

Since the calculated capital gain is negative, it means there is no capital gain tax applicable in this case. This is because the sale proceeds are less than the indexed cost of acquisition and improvement.

Tejas Chokshi  |126 Answers  |Ask -

Tax Expert - Answered on Aug 07, 2023

Sir, during this month (August2023) I sold my flat which was purchased by me in 2010. The total sale consideration as per govt guidelines was Rs 5973000/ and was registered at that amount, accordingly TDS at 1% on it was deducted at Rs 59730 and was credited to the govt account. My query is , TDS on sale of property at 1% is applicable in case the amount of sale exceeds Rs 50.00 lakhs . Whether the TDS is applicable on full sale consideration or on the difference amount ie, (5973000-500000)Rs 973000. 2. I had purchased the flat in April 2010 and the purchase price was Rs 3150000/ including Stamp duty, Registration charges and small amount towards interior work. I request you to advise me the applicability of Capital Gain Tax on it. Now I do not want to invest in any new property or in Capital gain bonds, I want to pay the applicable tax and close the transaction. Please advise me about the applicable Tax and close the formalities applicable in this regard. Siddramappa Kudarimoti.
Ans: The TDS (Tax Deducted at Source) of 1% on the sale of property exceeding Rs 50 lakhs is applicable on the full sale consideration. In your case, since the total sale consideration was Rs 5,973,000, the TDS of Rs 59,730 was deducted as per the guidelines. Based on the information you've provided, you might be liable for Capital Gains Tax. Capital Gains Tax is calculated based on the difference between the selling price and the indexed purchase price. The indexed purchase price adjusts the original purchase price for inflation over the holding period.
The tax on long-term capital gains is usually 20% (plus applicable surcharge and cess) after considering any exemptions or deductions available under Section 54 or Section 54F if you are not investing in another property or capital gains bonds.

To close the transaction and fulfill your tax obligations, you should consider the following steps:

a. Calculate Capital Gains: As explained above, calculate the capital gains based on the indexed purchase price and selling price.

b. Pay Capital Gains Tax: If you decide not to invest in another property or capital gains bonds, you will need to pay the applicable capital gains tax. You can do this by filling out the appropriate sections in your income tax return and paying the tax amount.

c. File Income Tax Return: Ensure that you accurately report the capital gains in your income tax return for the assessment year.

d. Keep Documentation: Maintain all relevant documents related to the property sale, purchase, and tax calculations for future reference
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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.


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