Income tax department has said that for the purpose of calculating long term capital gain tax, the cost of acquisition of immovable property purchased before the year 2001 shall be the fair market value (FMV, not exceeding stamp duty value) or actual cost of land or building as on April 1, 2001. The government on Tuesday proposed in the Union Budget to reduce the long term capital gains (LTCG) tax on immovable properties from 20 percent to 12.5 percent and remove the benefit of inflation adjustment (indexation) for properties purchased after April 2001.
what are the rules
In case of properties purchased before the year 2001, the fair market valuation (not exceeding the stamp duty value) can be made the basis for determining the inflation adjusted value. The value after inflation adjustment will be deducted from the sale price to calculate LTCG and then taxed at 20 per cent. The Income Tax Department wrote on the social media platform ‘X’ that the issue has been raised about the cost of acquisition till April 1, 2001 for properties purchased before the year 2001. The department has said that for properties (land or building or both) purchased before April 1, 2001, the purchase cost as per the value of April 1, 2001, or the fair market value of such asset as on April 1, 2001 (not exceeding the stamp duty value, wherever available) will be the cost of acquisition of that asset. The department said in the information issued on Thursday night, “Taxpayers can choose one of the two options.”
Income Tax Department explained with example
The Income Tax Department has tried to explain with an example how capital gains tax will be calculated in case of properties purchased before 2001. It gave the example of a property whose acquisition cost in 1990 was Rs five lakh and its stamp duty value on April 1, 2001 was Rs 10 lakh and FMV was Rs 12 lakh. If it is sold for Rs one crore on or after July 23, 2024, the cost of acquisition as on April 1, 2001 will be Rs 10 lakh (stamp duty or FMV, whichever is lower). The inflation adjusted cost of this acquisition in FY 2024-25 is Rs 36.3 lakh (Rs 10 lakh multiplied by 363/100). 363 is the cost inflation index for FY 2024-25. This index is notified by the Income Tax Department.
How much tax will be
In this case, LTCG comes to Rs 63.7 lakh (after deducting Rs 36.3 lakh from Rs 1 crore). Thus, at the rate of 20 percent, LTCG tax for such properties will be Rs 12.74 lakh. Whereas, in the new system, LTCG will be estimated at Rs 90 lakh (after deducting the cost of Rs 10 lakh from Rs 1 crore) and the long-term capital gains tax on it will be Rs 11.25 lakh crore at the rate of 12.5 percent.
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