Capital Gain Tax Calculations

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This discussion focuses on calculating Capital Gains Tax (CGT) when selling a property. It explores two options for managing the sale proceeds: using funds to settle a loan on another property or depositing the entire amount into a bank account. The advice suggests that settling a loan on a property purchased within a year of the sale can exempt CGT. If this exemption isn't applicable, it's generally better to pay off loans as the interest saved often outweighs bank deposit earnings.

Sameer Saurabh

Sameer Saurabh (Querist)
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28 June 2021 I bought a property in 20 lacs in 2011 (cost inflation index = 167) and selling in 2021 in 45 lacs (CII = 301).

Now, I have two options:

Option 1) Out of 45 lacs, invest 25 lacs to settle loan of another property. Remaining 20 lacs can be added to my bank account.

Option 2) Add entire 45 lacs to my bank account.

Can you please let us know which is better in terms of capital gain tax that needs to be paid?

Thanks in advance

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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28 June 2021 Option 1 is better if property for which loan is to be paid is bought within one year from the sale of the property. If so no capital gains tax payable.

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CMA Poornima Madhava

CMA Poornima Madhava (Expert)
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28 June 2021 If the option (as suggested above) is not applicable (i.e. if the other house has not been purchased within 1 year before sale of the subject property), then no exemption can be claimed in respect of capital gain. In this case, opt1 is better because interest earned on deposits is less than that paid on loan.

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Sameer Saurabh

Sameer Saurabh (Querist)
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28 June 2021 Great! I think the solution is to pay the loan amount equivalent to capital gain, so as to get exemption. Ideally, loan should be planned so that outstanding amount is almost equal to capital gain. Remaining can be put in Bank.

I have cash to buy home now, so will invest less cash, take some loan so that capital gain tax is minimized (perhaps 0) and put all other money in Bank.

Thanks All

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