I am a widow. My husband booked a flat in 2014. It was to be completed in 2017 but was stuck . Now with new investors they are completing in 2025. Paid up amount was 73 lacs out of total 83 lacs. Now, escalation cost of 1200/- per sft + tax is demanded by new investor in order to obtain the flat. If ready ,it still seems a good deal since market rate is now more than double.Otherwise , they say they will refund paid up amount minus tax and with no interest at all. I need to decide. Please tell me about Long-term capital gain tax . Is it better to take possession and sell or sell before registration ? Which is more beneficial in terms of tax

Ans: If you want to save tax, you must buy the residential house property 1 year before or 2 years from date of such transfer of capital asset or construct the house property within 3 years from date of transfer of such capital asset. As i understand, you will buy (not construct) house 1 year before transfer of old, exemption is available subject to fulfillment of other conditions. Date of Possession will be important for calculation.

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: 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

Ans: 01. You have to purchase a new house property within 2 years after Sale of Flat, to enable you to be entitled for exemption u/s 54. Kindly watch timeline, between sale & purchase of Flats.
Most welcome for any further clarifications. Thanks.

Ans: Repayment of housing loan will not reduce capital gain tax directly. However, if you want to save tax, you can invest gain amount in another residential property.

Capital gain calculation will depend on contribution given by each of the owner at the time of acquisition of property. If mother doesn't have source of income or old savings, she will not be considered as owner of property. Also brokerage is not allowed as deduction.

Assuming you are 100% owner for income tax purpose and allowable cost is 90L, appx capital gain would be 430000 (assumed 31st March 2025 as date of transfer) on which tax would be 85k plus applicable surcharge cess.