Understanding Long-Term Capital Gains Tax on Real Estate: A Guide
Learn how to calculate long-term capital gains tax on real estate properties purchased before 2001, including the cost of acquisition and fair market value.
Long Term Capital GainsReal EstateIncome TaxFair Market ValueCost Of AcquisitionReal Estate MumbaiJul 27, 2024
However, it's essential to note that the benefit of indexation has been done away with for properties purchased after April 2001. Indexation allows taxpayers to compute gains arising out of the sale of capital assets after adjusting for inflation. For properties purchased before 2001, fair market valuation (not exceeding the stamp duty value) can be used as a base to determine the indexed price.
The I-T department has provided a clear example to illustrate how capital gains tax would be calculated in case of properties purchased prior to 2001. For instance, if a property was purchased in 1990 for Rs 5 lakh, and its stamp duty value as on April 1, 2001, was Rs 10 lakh, with a fair market value of Rs 12 lakh, the cost of acquisition as on April 1, 2001, would be Rs 10 lakh (lower of stamp duty or FMV).
If this property is sold on or after July 23, 2024, at Rs 1 crore, the indexed cost of acquisition in the 2024-25 fiscal year would be Rs 36.3 lakh (Rs 10 lakh 363/100), using the cost inflation index for FY25 notified by the I-T department. The LTCG in such cases would be Rs 63.7 lakh (Rs 1 crore minus Rs 36.3 lakh), and at a tax rate of 20%, the LTCG tax for such properties would be Rs 12.74 lakh.
In conclusion, it's crucial for taxpayers to understand the cost of acquisition and fair market value when calculating LTCG tax on real estate properties purchased before 2001. By following the guidelines provided by the I-T department, taxpayers can ensure accurate calculations and avoid any potential disputes.
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The Income Tax (I-T) department is responsible for administering and collecting taxes in India. It provides guidance and clarifications on various tax-related issues through its official channels.
Frequently Asked Questions
What is the cost of acquisition for real estate properties purchased before 2001?
The cost of acquisition will be the fair market value (FMV) as of April 1, 2001, or the actual cost of the land or building.
Is indexation benefit available for properties purchased after April 2001?
No, the benefit of indexation has been done away with for properties purchased after April 2001.
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 LTCG on real estate properties?
The tax rate for LTCG on real estate properties is 20% for properties purchased before 2001, and 12.5% for properties purchased after 2001.
What is the purpose of fair market valuation in calculating LTCG tax?
Fair market valuation is used as a base to determine the indexed price, which is then reduced from the sale price to calculate LTCG tax.
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