Capital gains tax

This query is : Resolved

Sushrutha (Querist)
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01 July 2016 A client of mine who is about 70 years old and a widower,living alone as two of his daughters are married and living abroad, sold his apartment in panaji Goa for Rs.45,00,000/- .in Nov 2015. He paid Rs. 1,32,000/- as commission to agent for sale. Rs.12,000/- as legal fees.He had purchased the same for Rs. 9,82,500/- in feb 2003.Plus Rs.25,112/- for basic interior works. He further paid Rs.40,000/- as price for car parking.,He did some improvements in 2004 amounting to Rs.1,50,000/-.

The sales proceeds were invested like this. R.14,00,000/- in REC Bonds. Rs.6,00,000/- in ICICI Prudential Mutual Funds Tax Saving dividend income fund. Further, as he was alone and no one to take care, He joined an elderly living and care centre which is a paid centre in bangalore. The place provided him a fully furnished single occupancy Room with attached toilet and bathroom and a kitchen platform on a rent of Rs 35,000/-(Rs 14,000 Rent + Rs.21,000 Service fee which includes food cleaning. There is a ten year long Lease for this facility and a Refundable deposit of Rs 17,50,000/- + Non-Refundable deposit of & Rs 7,50,000/- is deposited With Mantri Group offering this facility.He has a Pension income of Rs.2,50,000/- and interest income of Rs.16,000/-. How to treat the LTCG as the entire sales proceed is invested as mentioned above? As per calculation of cost of indexation his capital gain is approximately Rs.11,00,000/-.

Kaushik Joshi

Kaushik Joshi (Expert)
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02 July 2016 Dear Sushrutha, No LTCG shall arise since if the capital gain is Rs 11lac approx and his investment in rec bond is Rs 13lac. Kindly refer sec 54EC for further clarifications.

Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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18 July 2024 To calculate the Long-Term Capital Gains (LTCG) for your client from the sale of his apartment in Goa and understand the tax implications, let's go through the details step by step:

### Computation of LTCG:

1. **Sale Consideration:**
- Sales proceeds from the apartment: Rs. 45,00,000/-

2. **Cost of Acquisition:**
- Purchase price in February 2003: Rs. 9,82,500/-
- Cost of improvements in 2004: Rs. 1,50,000/-
- Basic interior works: Rs. 25,112/-
- Cost of car parking: Rs. 40,000/-
- Total Cost of Acquisition = Rs. 9,82,500 + Rs. 1,50,000 + Rs. 25,112 + Rs. 40,000 = Rs. 11,97,612/-

3. **Expenses incurred:**
- Commission to agent: Rs. 1,32,000/-
- Legal fees: Rs. 12,000/-

4. **Indexed Cost of Acquisition:**
- Indexed Cost of Acquisition is calculated using Cost Inflation Index (CII) for the relevant years.
- Indexation benefit adjusts the cost of acquisition for inflation, thereby reducing the taxable LTCG.
- Assuming indexation brings the cost to approximately Rs. 20,00,000/-

5. **Long-Term Capital Gains Calculation:**
- LTCG = Sale Consideration - Indexed Cost of Acquisition - (Expenses related to sale)
- LTCG = Rs. 45,00,000 - Rs. 20,00,000 - Rs. 1,44,000 (Rs. 1,32,000 + Rs. 12,000)
- LTCG = Rs. 45,00,000 - Rs. 20,00,000 - Rs. 1,44,000
- LTCG = Rs. 23,56,000/-

6. **Investment of LTCG:**
- Your client has invested the entire LTCG amount as follows:
- REC Bonds: Rs. 14,00,000/-
- ICICI Prudential Mutual Funds: Rs. 6,00,000/-
- Joining an elderly living and care center (assuming this is eligible under Section 54/54F): The rent and deposit details are provided, but for claiming exemption under Section 54/54F, he should have invested in another residential property. If the elderly living facility does not qualify as a residential property under these sections, this part of the investment might not be eligible for exemption.

### Tax Implications:

- **Tax on LTCG:** LTCG on sale of residential property is taxed at 20% after indexation.
- Tax on LTCG = 20% of Rs. 23,56,000 = Rs. 4,71,200/-

### Conclusion:

Your client has substantial LTCG from the sale of his apartment in Goa. He has invested the proceeds in REC Bonds and ICICI Prudential Mutual Funds, which will help him reduce the taxable capital gains. However, the investment in the elderly living and care center needs to be carefully assessed for eligibility under Section 54/54F.

To ensure compliance and optimize tax benefits, it's advisable for your client to consult with a tax advisor or chartered accountant who can review the specifics of his investments and provide guidance on claiming exemptions and fulfilling tax obligations effectively.

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