Capital gains tax and investment

U have a load of questions for one query? no wonder nobody has dared give a reply. - Just joking sir.

Q 1. I think at your age it is better to show the entire sale consideration in the sale deed(stam paper).

Q2. (actually your Q 3) U can subsititute the Fair market value as on 1/4/1981 for this property as the cost since your date of acquisition and improvements are prior to this date. You can get help from some document writers to search up the value in the Registrars office in the same area/Survet No for some document which is registered around April 1981. If it is too difficult, u can add up you rcost (8800+40000+100000) = 148800 It may not make much difference as can be seen below.

Assuming your cost is taken as above, your capital gains is worked out as below

Sale Consideration =                                                    110,00,000

(You can reduce any brokerage paid by you to agents from this amount) let's say 200000

Net Consideration =                                                     108,00,000

Less Cost

Actual Cost == 148800

indexed cost in 2011-12   = 148800 x 754/100 =           11,21,952

Capital Gains                                                                  96,78,048

U can invest this in the following manner to avoid tax totally on capital gains. Assuming the sale will be registered in OCtober 2011 but before march 2012.

first deposit the entire sale consideration in a scheduled bank - FD or SB 

Invest Rs. 50,00,000/- in NOtified Bonds of Rural Electricfication Corporation or National Highway Authority Limited before March 2012.

Invest Another 46,78,048 in same bonds on any date between 1/4/2012 to the date on which 6 months expire from date of sale. Assuming Slae deed is registered on 15/10/2011 the the last date of investment would be 14/4/2012.

These bonds carry interest of 6.5 to 7 % and have a lock in period of 3 years. i.e u cannot withdraw the money for three years. But No Tax will be deducted from the interest paid to you. After 3 years u can withdraw and use the 96.78 lakhs in any way u wish. Also the cost of 11.21 lakhs as worked above can be used by you in any way from 15th Oct itself.

U will not be liable to pay any tax on Capital gains by above method. As I said even if u subsititute the FMV as on 1/4/1981 a s cost there will be no difference to your tax angle - only benefit would be the amount to be compulsorily invested may reduce a little.

You may note that this particular benefit is available to you only if Sale deed is executed between 1st October and 31st March 0f every year, The reason is the combined effect of the following provisions of income tax law

a. there is a grace period of 6 months for u to invest the mandatory amount for claiming benefit

b. maximum benefit that can be claimed out in this manner is restricted to 50 lakhs per financial year

c the eligible time window in your case falls in two financial years and therefore the benefit for u.

Hope this advice is of help to you in your ripe age which I offer with my respects

Hi Sir,

First of all my many many thanks for your reply to my overloaded questions. I appreciate your effort for giving me a great advice.

After reading your reply, I came to a conclusion for paying tax. Again I am seeking your advice. So for capital gain of Rs.96,78,048 I have to pay 20% plus 3% cess totalling to 20.60% of Rs 96,78,048. I want to know whether any additional amount is to be paid as tax as per section 234 A, B, C. I think the index 754 is not correct. it is 785 for 2011-12. I am attaching a calculator file here. As per this file tax is coming to Rs 2142910. Expecting your valuable advice. Is this calculator is in order?

Very good answer Raja,

Mr. Sunil, your calculator in excel for capital gain is very good.

1,08,00,000 - 11,68,080 = 96,31,920/- (96 lacs capital gain)

96,31,920 x 20.60% = 19,84,175/- (19 lacs tax liability)

If you invest Rs. 50,00,000/- in REC (3 years lock-in with 6.5% p.a) Bonds then:

96,31,920/- - 50,00,000 = 46,31,920/- (46 lacs capital gain)

46,31,920 x 20.60% = 954,175 (9 lacs tax liability)

Note: Whatever investments you make, always nominate somebody from your family)

Hi, Mihir,

I am seeking your advice. If I buy a flat for Rs.70 lakhs within 3 years from the date of sale, I will be liable to pay tax for balance amount of Rs.26,31,920 at 20.60%. Am I correct?

Yes, you are right.

1,08,00,000 - 11,68,080 = 96,31,920/- (96 lacs capital gain)

96,31,920 x 20.60% = 19,84,175/- (19 lacs tax liability)

If you invest Rs. 70,00,000/- in purchase of a flat  : (exemption u/s 54 if within 3 years)

96,31,920/- - 70,00,000 = 26,31,920/- (26 lacs capital gain)

26,31,920 x 20.60% = 542,175 (5 lacs tax liability)

Yes Sir u are absolutely right the index is 785 as pointed out by you. My sincere apologies for the mistake

reworking the capital gains as under:

Sale Consideration = 110,00,000

(You can reduce any brokerage paid by you to agents from this amount) let's say 200000

Net Consideration = 108,00,000

Less Cost

Actual Cost == 148800

indexed cost in 2011-12 = 148800 x 785/100 =           11,68,080

Capital Gains                                                                  96,31,920

tax would be 20% Plus Cess which is =                         1984176

If your registration is going to happen in October, then the first payment of advance tax would be due on 15th December 2011 which would be 60% of the tax payable or Rs. 1190600/-

Balance Tax would be payable on 15th March 2012. If you pay as per this schedule then no interest under 234 B or C would arise. 234 A is for delay in filing return which I advise u file without delay. If you have paid the full tax due as above then no interest under 234 A would arise even if u delay the return. The tax calculator seems to be correct. But total payable includes interest which u need not pay if u pay the advance tax as above.

Hope this clarifies. Hv a good day. Am attaching the notification for Index for FY 2011-12

Thank you for reply sir

I have sold my house in Chennai and purchased an Apt in Bangalore.
 
The land in Chennai was purchased in 1966 and construction of a house on it, was completed in 1975. In order that I can compute the Capital Gains, the 'Market Value' of the House as at 1981 is required.
 
I have tried all possible methods to find out the value of the house to be taken for 1981 (indexation purpose), but have failed to do so. I have visted the Sub Registrar Office in the area, but found that NO SALE happended in our locality or any other locality nearby, in the year 1981. In fact there have been enquiries fromthe IT Dept for the 'Guidance value' of the property in the locality in 1981, but the SRO has been unable to provide any evidence or respeonse to the query so far.
 
KINDLY ADVISE, HOW THE FAIR MARKET VALUE OF 1981 CAN BE OBTAINED AND WHAT FIGURE I SHOULD TAKE FOR THE PURPOSES OF INDEXATION benefit.