17 March 2013
Sir, I am leaving under pagadi system fr more than 15 years and two years back it had went to redevelopment. I had paid Rs. 150000/- only on account of stampduty and registration charges. The builder has made sale deed giving ownership to me.
Now I want to sell this flat for 20 lacs. Then what will be tax treatment for capital gain or any other heads of Income?
18 July 2024
In the case of pagadi system flats undergoing redevelopment and subsequent sale, here's how the tax treatment for capital gains would typically apply:
### 1. Capital Gain Calculation:
1. **Cost of Acquisition**: - Since you have been living under the pagadi system for more than 15 years and the flat underwent redevelopment, the cost of acquisition for computing capital gains will include: - **Stamp Duty and Registration Charges**: Rs. 1,50,000 paid for stamp duty and registration. - **Improvement Costs**: Any costs incurred for redevelopment or improvement of the flat. If you have records of payments made towards redevelopment or improvements, these should be included. - **Cost of Acquisition**: Total of above expenses.
2. **Indexed Cost of Acquisition**: - Adjust the cost of acquisition using the Cost Inflation Index (CII) to account for inflation over the holding period. The indexation helps in reducing the taxable capital gains. - Formula: Indexed Cost of Acquisition = Cost of Acquisition × (CII of the year of sale / CII of the year of acquisition)
3. **Sale Consideration**: - This is the amount you receive from selling the flat. In your case, it's Rs. 20,00,000.
4. **Calculate Capital Gain**: - Capital Gain = Sale Consideration - Indexed Cost of Acquisition
### 2. Tax Treatment:
- **Long-Term Capital Gains**: If you have held the flat for more than 24 months (2 years), the resulting gain would be classified as long-term capital gains (LTCG).
- **Tax Rate**: LTCG on sale of residential property is taxed at a rate of 20% with indexation benefits.
### 3. Exemptions under Section 54:
- **Reinvestment to Save Tax**: If you intend to save tax on the capital gains, you can reinvest the sale proceeds in another residential property under Section 54 of the Income Tax Act. Here are the conditions: - Purchase or construct another residential house within 1 year before or 2 years after the date of transfer of the original house. - Alternatively, invest in specified bonds (Section 54EC) within 6 months from the date of transfer.
- **Exemption Amount**: The amount of exemption is limited to the amount of capital gains or the cost of the new property, whichever is lower.
### 4. Other Heads of Income:
- Besides capital gains, any rental income earned from the pagadi system or other sources should be declared under the head of "Income from House Property" while filing your income tax return.
### Conclusion:
Ensure you maintain all relevant documents such as sale deed, redevelopment agreements, and receipts of expenses incurred for calculation and verification purposes. For precise calculations and advice tailored to your specific situation, it is advisable to consult with a tax advisor or chartered accountant who can consider all aspects and provide detailed guidance in compliance with tax laws.
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