Suppose you sell a plot of land for Rs 10lacs in Fy 2006-07 and cost of which was 1 Lac. The plot of land was purchased in 1985-86. Therefore, in your return of income you will have to show the capital gains tax .What is the capital gains? Is it Rs 9(10lacs-1lacs).No, the I T Act provides a method of computing the cost by inflating applying cost inflation index notified by the government every year.So the calculation of long term capital gains is as follows:
- Cost = Rs 1,00,000
- Purchase year =1985-86
- Cost Inflation Index for 1985-86 is 133
- Sale year = 2006-07
- Cost Inflation Index for 2006-07 is Rs 497
- Inflated cost = 1,00,000 x 497 /133= 3,73,684
- So long term Capital gains is :
- Sale value 10,00,000
- less
- Cost of land 3,73,684
—————
6,26,316
You will have to pay tax @ 20% on this amount.
The chart for the cost inflation index from 1981-82 onwards is as under:
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About taxworry
very useful. I’m sure this applies to sale of flats/house too apart from land?
but why tax @ 20%? Since this is a long term (> 3yr) capital gain, I thought that there would not be any tax at all! Isn’t so?
But why tax @ 20%? Since it is a Long term capital gain (> 3yrs), I thought the sale would not attract any tax at all! Isn’t so?
Is the index for 2006-07 is 519. It is mentioned as 497. Clarify
Property purchased jointly by three A-60%,B-15%&C-25% in 1991-1992 Total Cost Rs 10.10 Lac. Here C is father of B.
After death of C in 2005 B got share of his father per registered will.Now share in joint property of B is 15+25=40%
B is going to sell his portion in 2010-2011 for 60.00 Lac and shall invest in flat to be free from long term capital gains tax obligations.
B Plan to sell father,s portion in 2011-2012 at 1.00 Crore and plans to buy another flat and invest to be free from long term Capital gains tax obligation
Kindly let me know weather I can buy Two flats in this manner or I will be liable to pay Tax on second flat. alternatively what is the best remedy to be free from long term capital gains tax obligations and have two properties and save substantial capital for shop and expansion of business