In this article I will be writing about the indexation for the Long Term Capital Gains(LTCG). I have published many articles explaining the capital gains and different types of capital gains. It seems to be not enough for our readers, still asking many questions about the capital gains and the main doubts is how to calculate the index value of the sold property. This article explains the problem with a small example on Long Term Capital Gains(LTCG). Also it covers some of the ways to avoid the capital gains tax. I hope this article will be useful for the readers. If you have any doubts, please post it in the comments section. Get free updates on mail.
Know About Capital Gains
Before getting into the Long Term Capital Gains(LTCG), consider learning about the basics on capital gains. Earlier I have written about basics on capital gains.
Cost Inflation Index(CII)
In this section I will explain how to find the present value of the indexation. In order to find the capital gains tax, you will have to find the actual value of the property at the time of sales. The following is the formula to find out the indexation:
CII for the year the property sold
Indexed Cost of Aquisition = ———————————————— x Cost Price
CII for the year the property bought
How to calculate Capital Gains Tax?
The above section only illustrates the formula for finding out the indexed value of acquiring the property. In this section I will explain how to calculate the capital gains tax with simple example.
Example:-
Question:
Mr. X bought new house in May, 2002 for Rs.1000000. The same house he sold for Rs.1900000 in the year 2007, August. How much he is liable to pay the capital gains tax and how he can reduce the tax by investing the profit into other avenues?
Answer:
551
Indexed Cost of Aquisition = —– X 1000000 = Rs.1232662
447
Capital Gains = 1900000 – 1232662 = Rs. 667338
Capital Gains Tax = 20% of 667338 is Rs. 133467
I hope the above solution helped you to understand how to find the capital gains tax. There are few scenarios where you can exempt the whole or part of the capital gains tax.
How to reduce the Capital Gains Tax?
If you are investing the capital gains from the sale of property into any of the following categories, it can be exempt from the tax.
- If you had invested the amount equal to the capital gains with in one year prior to the selling property.
- If you have invested the amount equal to the capital gains with in two year after the selling property.
- It is three years if the investment is for constructing new property.
- You can invest up to Rs.50 lacs in National High Way Authority of India(NHAI) or Rural Electrification Corporation(REC) with in 6 months.
In the above scenarios, the total capital gains tax will be exempt. Note that, if the invested amount is less than the total capital gains, then you will have to pay the tax for the remaining amount.
Summary
I hope this article will help the readers to understand how the capital gains tax is calculated. This article explains only about the long term capital gains. If you have any doubts please post it in the comments section.
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April 9, 2010 at 4:15 am
On the Capital Gains article , 2 questions
1.Will the above apply , in case assessee owns 2 hourses and LTCG on one of them is invested in NHAI and REC ?
2.What will be lock in period of NHAI and REC Bonds ?
November 27, 2010 at 7:13 pm
what is the cost price
Is it includes regiteration & stamp duty
February 13, 2011 at 10:33 am
I purchased factory shed at ambattur 12000 sq.ft land and 5600 sq.ft shed. for 5.17 lakhs. in 1987. As it is a government allotment it was registered only in 1990.
If I am selling it for 260lakhs now what will be the capital gains tax.
I gave advance for a flat 18 months ago for an yet to be finised apartment. 22 lakhs. It will take another 3 months to complete the apartment.
Can i buy more than one house. I do not have any house as on date in my name.
what is the best way to deal with the balance to save tax
September 14, 2011 at 5:36 am
I bought 865Sq feet flat in Thakur Complex Kandivali east in May,2000 for 12.8 lakh plus .60L for Stilt parking space. If I sell it today for 95 lakh,
Q1 How much will be taken as LTCG?
Q2.If I pay 27 lakh towards a home loan on another flat owned by me,
will it reduce my long term capital gain tax
Q3. What are other ways to save capital gain tax on this transaction
September 20, 2011 at 12:01 am
Is this a compulsion that property purchased for saving the the Capital gain tax. should be in the same category..
that is if we sell a commercial plot…. we can only by commercial plot with the capital.. or if I sell agricultural do I need to buy a agricultural land only.
can capital can be reinvested against bank loan on property purchased within a last year.
October 2, 2011 at 2:22 am
I sold my factory land for Rs 30 lacs in Sept’ 2011 which i had purchased in 2003 for 3 lacs. Let me how can i avoid LTCG tax.
October 2, 2011 at 2:23 am
sfsdf
November 29, 2011 at 11:10 pm
how to find the f m v as on 1-4-1981 for a 60 year old residential house
rajesh
December 7, 2011 at 9:39 pm
i ‘ve a plot .may fetch 2-3crores.bought for about a lakh in 1986.
spent about 30k on taxes. what time is best to sell. want to buy a house for about 70-80 lakhs. what is best with the rest.
January 6, 2012 at 9:18 pm
I have a parental house build in 1932.This property i got through will.property area is built area and open area is 2550Sq. Mtrs.as i want to sell it in 3crores now.how the capital gains tax will be calulated.
Girdhar Gopal
March 3, 2012 at 8:14 pm
I sold my flat which was mortgaged to bank (as I had taken bank loan )and paid interest( for more than 5 years). Now , while calculating th long term capital gains, do I need to deduct the total interest component which I paid to the home loan lender / bank from the profit made during the sale ?
October 15, 2012 at 6:06 pm
I sold a property and i know abt CGT ,after calculating the inflation ..index..I have a Long Term Capital gain tax for 86 lakhs. I want to know …whether i can invest in 3 Residentail Apartment which costs(45 Lakhs , 25 lakhs and 16 Lakhs ) respectively.
In one of the article some one told ..only one property can be bought to avoid tax..
Ref:
http://www.caclubindia.com/forum/long-term-capital-gain-re-investment-192003.asp#.UHvu52_A9vA
I am more confused…..pls help
March 2, 2013 at 2:34 pm
Hi ,
I need your special expertise . I have booked a apartment with a builder in NOV 12. I have sold my another apartment for 40 L in Oct 12 which was bought in Aug 2004 . With that amount i have invested in booking another apartment ( The full cost being 1.25 Cr ) . The booking amount was 60 L . the Apartment is not yet approved. It is in the final stages of approval . So i will be able to register my new flat only by aug 13 . hopefully by then approval MMDA has to come . My Doubt is should i pay capital gain Tax . IS there any way to escape from Capital gains tax
March 5, 2013 at 6:01 am
Hello Harini,
Thank you for the comments.
Lets first deposit your amount in the Capital Gains Savings Account to avoid paying the tax for current year. Also it provides you three more years to plan for avoiding the capital gains tax. You can invest the long term capital gain amount in any other resident property and avoid paying the tax. Please read our articles:
http://www.thinkplaninvest.com/2012/03/how-to-plan-income-tax-for-capital-gains/
http://www.thinkplaninvest.com/2009/10/what-is-capital-gains-account-scheme/
http://www.thinkplaninvest.com/2009/12/what-is-capital-gains-tax-saving-bonds/
Thanks,
Krishna