The Income Tax (I-T) department has issued an important clarification regarding the sale of old properties. For properties purchased before 2001, the cost of acquisition will be the fair market value (FMV) as of April 1, 2001, or the actual cost of the land or building. This is to calculate the long-term capital gains (LTCG) tax.
The recent budget for the financial year 2025 has reduced the LTCG tax on real estate from 20 per cent to 12.5 per cent. However, properties bought after April 2001 will not get the benefit of indexation.
Indexation allowed taxpayers to adjust the gains from the sale of capital assets for inflation. For properties bought before 2001, taxpayers can use the fair market value (not exceeding the stamp duty value) as the base to determine the indexed price. This indexed price will be deducted from the sale price to calculate the LTCG, which will be taxed at 20 per cent.
In a post on social media platform X, the I-T department addressed concerns about the cost of acquisition for properties purchased before 2001. They stated that the cost of acquisition as on April 1, 2001, could be either the original cost or the fair market value (not exceeding the stamp duty value) as of April 1, 2001.
"Taxpayers can choose either option," the I-T department said in the post on Thursday night.
The department provided an example to explain the calculation of capital gains tax for properties bought before 2001. If a property was purchased in 1990 for Rs 5 lakh, had a stamp duty value of Rs 10 lakh, and an FMV of Rs 12 lakh as of April 1, 2001, and is sold on or after July 23, 2024, for Rs 1 crore, the cost of acquisition as of April 1, 2001, would be Rs 10 lakh (the lower of stamp duty or FMV).
The indexed cost of acquisition in the fiscal year 2024-25 would be Rs 36.3 lakh (Rs 10 lakh multiplied by 363/100). The cost inflation index for FY25, as notified by the I-T department, is 363.
In this case, the LTCG would be Rs 63.7 lakh (Rs 1 crore minus Rs 36.3 lakh). At a 20 per cent tax rate, the LTCG tax would be Rs 12.74 lakh.
2024-07-26T13:33:29Z dg43tfdfdgfd