I-T Department Clarifies Acquisition Cost of Real Estate Bought Before 2001 for LTCG Calculations
The Income Tax (I-T) department has issued crucial clarification regarding the cost of acquisition of real estate properties purchased before 2001 in the computation of long-term capital gains (LTCG) tax.
According to the new directive, for properties acquired 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, not exceeding the stamp duty value. This adjustment allows taxpayers to compute gains from the sale of capital assets after factoring in inflation.
In specific terms, the fair market valuation (not exceeding the stamp duty value) can be used as a base to determine the indexed price. Upon this calculation, the indexed price will then be deducted from the sale price to calculate the LTCG, which will be taxed at 20 per cent. The I-T department further elaborated on the cost of acquisition as on April 1, 2001, for properties purchased prior to 2001. It emphasized that for properties (land or building or both) bought before April 1, 2001, the cost of acquisition as on that date shall be either the cost of acquisition of the asset to the assessee, or the fair market value (not exceeding the stamp duty value, wherever available) of such asset as on April 1, 2001.
Taxpayers are granted the flexibility to choose either option. The I-T department illustrated this with an example involving a property acquired in 1990, highlighting the calculations involved in determining the capital gains tax on its sale after July 23, 2024.
Under the given example, if a property acquired for Rs 5 lakh in 1990 had a stamp duty value of Rs 10 lakh and an FMV of Rs 12 lakh as of April 1, 2001, and is subsequently sold for Rs 1 crore after July 23, 2024, the cost of acquisition as on April 1, 2001, would be Rs 10 lakh (lower of stamp duty or FMV).
Furthermore, the indexed cost of acquisition in the 2024-25 fiscal year would amount to Rs 36.3 lakh, calculated using the cost inflation index for FY25. Thus, the LTCG in such cases is determined to be Rs 63.7 lakh (Rs 1 crore minus Rs 36.3 lakh), resulting in a LTCG tax of Rs 12.74 lakh at a tax rate of 20 per cent.
This clarification by the I-T department introduces essential guidelines for computing long-term capital gains tax related to real estate properties acquired before 2001, providing taxpayers with the necessary framework for accurate and fair income tax assessments.
