Amt of LTCG required to be reinvested on house property sale and subsequent house purchased

Tax queries 446 views 3 replies

Adesh Jain

Law consultant

3 Points Joined April 2018

In view of amendment of July 2024, where properties held before that date were 'grandfathered' - meaning that these properties could take indexation benefit even if sold subsequent to July 2024. From tax angle, govt clarified that the lower of the two taxes need to be paid and a taxpayer can exercise either option which benefits him. The wordings however are that first one needs to compute under new regime, and then if under old regime the tax comes lesser, the excess tax ( calculated under new regime) shall be ignored.

However, this means relief is limited to excess tax being ignored.

But what happens if someone wants to reinvest the capital gains in a new house.

Will he have to reinvest the unindexed capital gains in the new house to claim full exemption or he can still take advantage of indexation and just reinvest only the capital gains arising post indexation?

Clarity is required on this- because there is no deptt clarification on this- and if capital gains now imply simply Sale price (minus) acquisition price+improvements, and not indexed cost of acquisition anymore, then how can we be sure abt which amount is required to be reinvested.

Replies (3)

Rama chary Rachakonda

Master in Accounts & high court Advocate

9518 Points Joined December 2011

Since there is no department clarification on this yet, and capital gains now imply sale price minus acquisition price plus improvements (without indexed cost of acquisition), it is unclear which amount needs to be reinvested for exemption.

sabyasachi mukherjee

28046 Points Joined May 2017

Cost of acquisition of the said capital asset.

Adesh Jain

Law consultant

3 Points Joined April 2018

It seems however the tax utility app ( as some CA friend informed me after checking) does compute the tax as zero if the amt reinvested is post indexation.

Besides, my discussion with various tax consultants, esp the practising ones, also leads me to believe that the paper def of capital gains as stated needs clarification because it does not synchronise with the objective of grandfathering older investments.

So a person can not compute his tax under the 20% indexation option and simultaneously be expected to nonetheless invest the entire balance capital gain basis the new definition( assuming he could not invest the entire capital gain).

And that is the feedback i recd- which got support from AI apps as well- it will depend on the way you choose to compute your capital gains.

If under old system of 20%, then reinvest the diff between sale price and indexed amt, and if under the new system of 12.5%, then it should be the sale amt minus the original cost of acquisition plus improvement ( unindexed).

Though one expert did differ with this view and found it strange how the tax utility app is taking the above view.

The govt/ CBDT surely must come up with this clarification to avoid hardships later.

My view remains that if rollover is granted, as also grandfathering for old investment exists, then due to the stated policy of non retrospective taxation, the govt should issue suitable clarification rather than letting innocent tax payer suffer later at the hands of someone taking any interpretation different from the commonsensical one.