I purchased a plot in HUDA in 1990 & construct a house which was completed in 1993. Total cost comes about 5 lakh. 3.5 lakh were loan &1 lakh from PF & 50000 from my savings. I sold the same in 60 Lakh deducting 60000 as tax in 2018 April. If there is long-term capital gain, how much tax I have to pay more or it can come within my limit. I am retired person, age 70 years. Pl. Advise me and oblige. Thanks
The formula to compute long term capital gains is:
capital gains = selling price - cost of acquisition
You are allowed to index the cost of acquisition to inflation i.e. you can take the inflation adjusted cost price instead of the actual cost price. This will lower your capital gains.
In inflation adjusted cost price, is also known as the indexed cost price. It is computed by using the cost inflation index (CII), a number which is released by the Income Tax Department. It can be accessed here - Income Tax Department: Cost Inflation Index.
The CII number is notified for each financial year. For example the CII of FY 2017-18 is 272 and for FY 2018-19 it is 280. The CII for all years prior to April 1, 2001 is 100.
cost of acquisition = actual cost price x (CII in year of sale)/(CII in year of purchase)
You are allowed to include the cost of improvements made over the years in the actual cost price. For example you can include the construction cost.
So for you the capital gains will be:
capital gains = 60 lakh - 5 lakh x (280/100)
capital gains = 60 lakh - 14 lakh
capital gains = 46 lakh
The tax rate is 20%. So for you the tax would be 20% of 46 lakh, which is Rs 9.2 lakh. You can save this tax by investing the sale amount in a new property or by investing in capital gain bonds.
However there is a provision for properties purchased before April 1, 2001. For such properties you have the option to take the cost of acquisition as the fair market value of the property on 1st April 2001.
So if the fair market value on April 1, 2001 is greater than Rs 14 lakh (indexed cost) then you can lower your tax payable.
Sachin Shah is a 30 year old Senior Software Engineer, working at an IT services company in Bengaluru. He and his wife want to plan for their retirement and also want to save for their child's education, wedding and for buying a car.View Case Study