• Capital gains tax calculation regarding

My father bought a resale property for Rs 49000 in the year December 1986 in his mother's name. 
In year March 2000 my father got the property transferred to his name from his mother at Rs 350000.
In the year July 2021 the property was sold by my father at Rs 2500000.
What is the Capital Gains Tax?
How much should he invest in 54EC bonds to avoid any capital gains tax?
Asked 17 days ago in Capital Gains Tax

Dear Sir,

 

Hope you are doing well !!

 

There would be capital gain of Rs ~ Rs 13.90 lakh.

 

It is calculated as below:

 

Sale consideration -Indexed COA= (Rs 25 lakh- Rs 11.10 lakh )= 13.90 Lakh.

 

The indexed COA= Rs 3.5 lakh /100*317= ~Rs. 11.10 lakh.

 

The capital gain will be taxed at 20.8% i.e he needs to pay 20.8% on INR 13.90 lakh.

 

However, as the date of acquisition of flat falls prior to 1 April 2001, he has a choice to consider the Fair Market Value (FMV) of the property as on 1 April 2001 as his acquisition cost. 

 

It is advisable to get the FMV/ valuation of the property as on 01.04.2001 done from the registered valuer.

 

-He can invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual and get the exemption u/s 54EC.

Such bonds shall be redeemable after 5 years. Only interest received on such bonds shall be taxable. There would be no taxes on redemption after 5 years

 

We may assist you in capital gain tax calculation  and entire procedure.

 

It is advisable to take a phone consultation for detailed discussion. 

Payal Chhajed
CA, Mumbai
5125 Answers
171 Consultations

5.0 on 5.0

- As the property was purchased before 01.04.2001, indexation factor would be applicable from the year 2001. Was it a gift from mother or purchase from her? If it is a gift then cost of acquisition would be treated as NIL. Assuming Rs.3.50 lacs is a circle rate on which stamp duty was paid for transfer of the property in the name of your father. Again assuming there is no huge difference between stamp duty value as on 01.04.2001 and in March 2000. Rs. 3.50 lacs would be considered as COA and ICOA is Rs. 11,09,500 and long term capital gain is Rs.13,90,500. Expenses such as brokerage, legal expenses etc. incurred for transfer of the property are deductible from sale consideration. Long term capital gain is taxable at special rate of 20.8%. If residential status of your father is resident and other income is less than maximum exemption limit then the long term capital gain would be reduced by the amount of exemption not setoff with the normal income. Maximum amount he can deposit in 54EC bonds is Rs. 13,90,500. He should invest the amount before Dec 2021.

Vivek Kumar Arora
CA, Delhi
4190 Answers
380 Consultations

5.0 on 5.0

- In case of gift, cost to the previous owner is considered. In your case, property was not purchased by your grandmother though she was legal owner. The cost of property was NIL in the hands of your grandmother. If there is no major difference in circle rate then Rs. 13,90,500 is a capital gain amount.

 

 

Vivek Kumar Arora
CA, Delhi
4190 Answers
380 Consultations

5.0 on 5.0

Hi

Calculation of long term capital gain is

Sale considered less cost of transfer less indexed cost of acquisition less indexed cost of improvement.

Indexed cost of acquisition 3.5 lakh *100/317 i.e. 11.10 lakhs (approx) 

In your case it would be around 13.90 lakhs (25

Lakhs less 11.10 lakhs )

Exemption under section 54EC is calculated lower of the amount of capital gain invested or INR 50 Lakhs.

You can invest upto 13.90 lakhs.

Please have a phone consultation for details discussion.

Karishma Chhajer
CA, Jodhpur
2439 Answers
27 Consultations

5.0 on 5.0

You need to consider the fair market value of the property as on 1st April 2001. The cost of acquisition of a capital asset in the case of a gift will be the cost of acquisition in the hands of the donor. As the asset was gifted to your father  prior to 1st April 2001, the cost of acquisition in his hands will be the market value of the property as on 1st April 2001 as per Government valuation. 

The indexed cost of acquisition will be 3.17 times the market value of the property as on 1st April 2001, if the property is sold on or or before 31st March 2022. If the market value of the property as on 1st April 2001 is, say, Rs 3.5 Lakhs, the indexed cost of acquisition will be 11.1 Lakhs. The long term capital gains will therefore be, in this example, Rs. 13.9 Lakhs, as mentioned by you. He can invest this money in capital gains bonds u/s 54EC to save capital gains. However, if your father is not having any taxable income, you may invest even less than Rs. 13.9 Lakhs, as the tax is computed on the  resultant capital gains after the basic exemption of Rs 2.5 lakhs ( Rs 3 Lakhs in the case of senior citizens).

He may also get exemption u/s 54, if he invests the capital gains in the purchase of a new residential house. 

B Vijaya Kumar
CA, Hyderabad
940 Answers
94 Consultations

5.0 on 5.0

Hi Satheesh

 

You can adopt 2000 value for indexation purpose of 2001 value is not available. Capital gains would be INR 13,90,500/-. 

 

You need to invest this amount of capital gains in 54EC bonds in order to claim capital gain exemption. The investment needs to be done within 6 months of sale of the property.

Lakshita Bhandari
CA, Mumbai
5539 Answers
629 Consultations

5.0 on 5.0

First you need to get the valuation for this property as on 01.04.2001.

Further, did your father get it back from his mother as a gift?

Investment in bonds depend on amount of Capital gain but maximum cap is 50 lakh and investment should be within 6 months.

 

https://www.taxontips.com/is-investing-your-capital-gain-amount-in-bonds-under-section-54ec-still-a-good-option-to-save-capital-gain-tax/

 

Hope you find the above information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Also you May Book phone consultation for further discussion.

Thank you

Naman Maloo
CA, Jaipur
3855 Answers
51 Consultations

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