• # Taxation of residential property constructed for sale

```Hello,

Below are the facts:

1. I plan to build residential apartments on my own plot of land.
2. Fair Market Value of land on April 1, 2001 = Rs. 83 lacs
3. Cost of construction for entire building = Rs. 1.8 crore
4. Number of apartments = 7 (all equal size)
5. Sale value of 1 apartment = Rs. 98 lacs

Assuming I build and sell in FY 2017-18, what will be the tax treatment and calculation on the sale of 1 apartment?

Thank you.```
Asked 3 years ago in Capital Gains Tax

Hi

Indexed value of the cost of total land would be 2.25 crores.

Total costs for 1 flat would thereby come to around 58 lacs.

So, capital gains would be around 40 lacs for 1 flat.

All the costs ( land and construction plus any other charges incurred for the property) shall be reduced from the sale proceeds to arrive at the capital gains amount.

Your capital gain amount will be approx 60 lacs per flat.

Indexed cost of land of 1 apartment= Rs.32.25 lacs

Cost of construction of 1 apartment = Rs.25.71 lacs

Capital gain of 1 apartment would be= Rs.40.04 lacs

The sale of an apartment would require calculation of Capital Gains separately on sale of land and separately on the structure constructed thereon (referred as building hereafter).

Upon sale of an apartment, long term capital gain would be calculated for sale of land and short term capital gain would be calculated on sale of building component separately.

The cost of land and cost of building for each apartment can be evaluated easily (Cost divided by 7).

However, the bifurcation of sale value into that of land component and building component cannot be done by such calculation.

For this purpose, you need to get a valuation report from a Registered Valuer with the value of land and building separated.

Assuming your sale value is bifurcated as follows:

Land: 60 lacs

Building: 38 lacs

Capital Gain on sale of 1 apartment would be as follows:

Capital Gain on land component: (long term)

Full value of consideration = Rs.60 lacs

Indexed cost of acquisition (83/7 * 272/100) = Rs.32.25 lacs (approx.)

Long term capital gain = Rs.27.75 lacs

Capital Gain on building component: (short term)

Full value of consideration = Rs.38 lacs

Cost of acquisition (180/7) = Rs.25.71 lacs (approx.)

Short term capital gain = Rs.13.71 lacs

Hi,

Indexed cost of the land in 2017-18 = 83×272÷100 = 225.76 lakhs

Construction cost = 180 lakhs.

Total Cost = 405.76 lakhs

Total cost per apartment =405.76÷7 =57.97 lakhs.

Selling price per flat = 98 lakhs.

So the capital gains will be 40 lakhs per flat.

Hope this clarifies.

Regards,

Nikhil.

Hi,

LTCG shall be calculated as below:

Cost of acquisition (fair value as on 01.04.2001) = Rs. 83 Lacs x 272 / 100 = Rs. 225.76 Lacs

Cost of improvement = Rs. 1.80 Crores (assuming the same is done in FY 17-18 only - Hence no indexation)

Total Cost of acquisition - 225.76 + 180 = Rs. 405.76 Lacs

Sale Value = Rs. 98 Lacs x 7 = Rs. 686 Lacs (assuming all sold in FY 17-18)

LTCG shall be Rs. 686 - 405.76 = 280.24

Tax @ 20% = Rs. 56.048 Lacs

Regards,

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