New Guidelines for Old Property Sale: I-T Department Issues Crucial Clarification
Get the latest update on the calculation of capital gains tax for properties bought before 2001.
Property SaleIncome Tax DepartmentLong Term Capital Gains TaxReal Estate NewsCapital Gains Tax CalculationReal Estate NewsJul 26, 2024
The recent budget for the financial year 2025 has reduced the LTCG tax on real estate from 20 per cent to 12.5 per cent. However, properties bought after April 2001 will not get the benefit of indexation. Indexation allowed taxpayers to adjust the gains from the sale of capital assets for inflation.
For properties bought before 2001, taxpayers can use the fair market value (not exceeding the stamp duty value) as the base to determine the indexed price. This indexed price will be deducted from the sale price to calculate the LTCG, which will be taxed at 20 per cent.
To address concerns about the cost of acquisition for properties purchased before 2001, the I-T department took to social media to clarify the calculation process. According to the department, taxpayers can choose to use either the original cost or the fair market value (not exceeding the stamp duty value) as of April 1, 2001, as the cost of acquisition.
To illustrate the calculation of capital gains tax for properties bought before 2001, the department provided an example. Let's say a property was purchased in 1990 for Rs 5 lakh, had a stamp duty value of Rs 10 lakh, and an FMV of Rs 12 lakh as of April 1, 2001, and is sold on or after July 23, 2024, for Rs 1 crore. In this case, the cost of acquisition as of April 1, 2001, would be Rs 10 lakh (the lower of stamp duty or FMV).
The indexed cost of acquisition in the fiscal year 2024-25 would be Rs 36.3 lakh (Rs 10 lakh multiplied by 363/100), using the cost inflation index for FY25 notified by the I-T department, which is 363. The LTCG would be Rs 63.7 lakh (Rs 1 crore minus Rs 36.3 lakh), and at a 20 per cent tax rate, the LTCG tax would be Rs 12.74 lakh.
Information The Income Tax department is responsible for collecting taxes in India. It is a government agency that falls under the Ministry of Finance.
The Ministry of Finance is the apex body responsible for managing the country's finances. It is headed by the Union Minister of Finance and is responsible for formulating and implementing policies related to taxation, budget, and economic development.
Frequently Asked Questions
What is the cost of acquisition for properties purchased before 2001?
The cost of acquisition for properties purchased before 2001 is the fair market value (FMV) as of April 1, 2001, or the actual cost of the land or building.
How is the indexed cost of acquisition calculated?
The indexed cost of acquisition is calculated by multiplying the cost of acquisition by the cost inflation index for the relevant fiscal year.
What is the tax rate for long-term capital gains on real estate?
The tax rate for long-term capital gains on real estate is 20 per cent.
Do properties bought after April 2001 get the benefit of indexation?
No, properties bought after April 2001 do not get the benefit of indexation.
How do I calculate the long-term capital gains tax on my property?
You can calculate the long-term capital gains tax by deducting the indexed cost of acquisition from the sale price and multiplying the result by the applicable tax rate.
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