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Capital gain tax for sale or property

Chetan (None) (27 Points)

26 October 2014

Need help regarding understanding Capital Gains calculations for sale of property.

Here is the senario, my father bought land in 1990 and built a house in 1991. He had spent 1.25 lakhs for land in 1990 and 3.25 lakhs for house in 1991 all using home loan. Later in 1995, he took 1 lakh loan for house improvement and spent on house. Later again in 1999 he took one more house improvement loan of 2 lakhs and spent on house.

Putting in tabular format

Year	Money	Purpose	Source
1990	1,25,000	Land Cost	Home Loan
1991	3,25,000	House Const	Home Loan
1995	1,00,000	House Improvement	Home improvement Loan
1990	2,00,000	House Improvement	Home improvement Loan

We are planning to sell the house, can some please help us us what would be the indexed value of our house? Can the money spent on house after initial construction can be included for indexed calculation?

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Mihir (Wealth Manager) (5293 Points)
Replied 26 October 2014

Computation of Long Term Capital Gain

Sale consideration = Value to be put

Less:

Indexed cost of acquisition (land) = Rs. 703,297/- (125,000 x 1024 / 182)

Indexed cost of acquisition (house) = Rs. 16,72,361/- (325,000 x 1024 / 199)

Indexed cost of improvement = Rs. 364,412/- (100,000 x 1024 / 281)

Indexed cost of improvement = Rs.526 478/- (200,000 x 1024 / 389)

LTCG = Answer (provided you sell the house along with the land in the FY 2014-15.

Chetan (None) (27 Points)
Replied 26 October 2014

Thanks a lot Mihir,

That cleared most of doubts. Have one more question

Lets say we sold the house+land for 50 lakhs, if I understand correctly we need to pay capital gain of 20% for approx 17.5 lakhs(considered total index value is approx 32.5 lakhs). To avoid capital gains, I was told that we can reinvest in another residential property. My question here is do we need to invest entire 50 lakhs in another residential property or is it ok if we invest 17.5 lakhs?

Thanks in Advance

Originally posted by : Mihir
	Computation of Long Term Capital Gain Sale consideration = Value to be put Less: Indexed cost of acquisition (land) = Rs. 703,297/- (125,000 x 1024 / 182) Indexed cost of acquisition (house) = Rs. 16,72,361/- (325,000 x 1024 / 199) Indexed cost of improvement = Rs. 364,412/- (100,000 x 1024 / 281) Indexed cost of improvement = Rs.526 478/- (200,000 x 1024 / 389) LTCG = Answer (provided you sell the house along with the land in the FY 2014-15.

Mihir (Wealth Manager) (5293 Points)
Replied 26 October 2014

No, not on 50 lacs. If you do not reinvest LTCG or 17.5 lacs, then 20% tax is payable on 17.5.

20% tax is on capital gain and not on sale value.

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Chetan (None) (27 Points)
Replied 26 October 2014

Thanks once again Mihir :)

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 29 October 2014

Mihir is correct provided you did not take Repayment of Housing loan deduction u/s.80C in any previous years. Indeed you need to deduct such amount from cost of acquisition while computing capital gain.

Chetan (None) (27 Points)
Replied 29 October 2014

Hi Ayyappa,

I was told that we need to deduct repayment of Housing Loan Deduction, if property sold before 5 years, not after. Can you please clarify?

I am little confused here as my father did take benefit of home loan for past 20+ years from tax angle. Do we need to deduct all the years as that could probably same or more than cost of acquision.

Thanks,

Chetan

Originally posted by : Nuli Swami Ayyappa
	Mihir is correct provided you did not take Repayment of Housing loan deduction u/s.80C in any previous years. Indeed you need to deduct such amount from cost of acquisition while computing capital gain.

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 30 October 2014

If you take repayment of housing loan as deduction u/s.80C, you should hold the property for which you have taken loan for a period not less than 5years. If you sold such house with in 5years from the date of purchase or construction, the aggregate of all deducions availed u/s.80C in this regard taxed as income in the year in which you transfer the property. As your father taking such benifit for a past period of 20years, no problem in this regard. so while calculating capital gain, you should deduct aggregate of deductions availed from the cost of acquisition while computing Long term capial gain and invest such capital gain amount in residential property to avail benifit u/s.54. It is to be noted that if you can not purchase or construct house before the date of filing return you should invest amount in Capital Gain Depository Scheme and use money form such account when ever you need for constructin or purchase of house property.

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