Hello all,
Mr. X purchased a property in 1997 for Rs. 1,60,000. That was the guidance value at that time.
Estimated market price was Rs. 2,50,000 at that time. Mr.X purchased at the guidance value. Now Mr. X is
planning to sell the property in this financial year(2018-2019)
If Mr. X calculates the capital gains for the same.
As per the current rules one has to assume the base indexation year is 2001 for which CII is 100.
And for the current year CII is 280. The FMV(Fair Market value) for the calculation purpose
Mr. X is taking it as Rs. 5,00,000(Approximately- Rs. 5 Lakhs) for the year 2001.
Indexed cost of Aquisition will be = 280*500000/100 = Rs. 14,00,000(Rs. 14 Lakhs)
Suppose the property is sold at Rs. 75,00,000(That is approximately the current
market price of the property).
Capital gains will Rs. 75,00,000 - Rs. 14,00,000 = Rs. 61,00,000(Rs. 61 Lakhs)
So Mr. X would need to pay capital gain tax of Rs. 12,20,000 for
the sale of this property if indexation is used to calculate the same.
To avoid this tax Mr. X would need to invest Rs. 61,00,000.
However if Mr. X doesn't want to take indexation into consideration, then
Mr. X can pay 10% of the tax which will be around 7.5 Lakhs. That will be
lesser than paying Rs. 12 lakhs as tax, taking indexation into
consideration. Mr. X has no plans to put it in buying any new property. He needs the money for some other purpose. Under those circumstances paying tax will be the best option I suppose.
Is this calculation and assumption right. Kindly confirm.
Thanks in advance for your time, help and inputs.
CHitra
CAclubindia
