TAX ON SELLING OF PROPERTY

This query is : Resolved

Maheshwari (Querist)
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31 May 2008 MY GRAND FATHER HAD BOUGHT A PROPERTY IN GUJRAT IN YEAR 1965 FOR RS 40,000/-. TODAY WE ARE SELLING THIS PROPERTY FOR 60 LAKHS. CAN ANY ONE ADVISE ME HOW MUCH TAX HAS TO BE PAID ON THIS ? I HAVE BEEN ADVISED THAT THE VALUATION OF 1981 HAS TO BE ASSESED, IS THERE ANY WAY ONLINE, WHERE WE CAN FIND ITS VALUE ?

IS THERE ANY WAY WE CAN SAVE TAX ON THIS BY EITHER GIFTING OR ANY OTHER WAY ? EXCEPT NOT PUTTING IN GOVT NABARD SCHEME ?

OR WHAT SHOULD BE THE APPROX TAX ON THIS ?

CA Hemant T Dewani

CA Hemant T Dewani (Expert)
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31 May 2008

Step1 : Get your property valued on 1/4/1981
Since your grandfather bought the house in 1965 , you have the option to substitute the market price as on 1/4/1981 as cost of the property . This is provided ins section 55(2)(b)(i) of the I T Act as given below

(i) where the capital asset became the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee ;So, get your value assessed by a registered valuer for determining the market price as on 1/4/1981 , which you will find considerably higher compared to 1974.

Step2. Compute the indexed cost
Now you should compute the cost as on the year of sale by taking the revalued cost of the property . For example if the property you want to sale by FY 2007-08, going by cost inflation index , the revalued cost of your property will go up by 5.5 times.
Read these articles for better understanding.
How Cost Inflation Index Saves You Tax?
Cost Inflation Index For FY 2007-08 Notifed!
Step3. Take benefit of exemption u/s 54 or section 54EC
Section 54 states if the long term gain is invested in another residential property , to that extent no tax shall be paid. Read Capital Gains Exemption on Residential Property Can be Availed u/s 54 for Even Joint Property

Or you can take the benefit of section 54EC . Read this How To Use Capital Gains Account Scheme To Save Tax? This way , you will not be required to pay any tax .

Shekar

Shekar (Expert)
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02 June 2008 Hi...

According to my Calculation taking 1981 as base year for Indexation..ur indexed cost of acquisition for 2007-08 would be Rs.220400....so ur Long term Capital gain would be Rs.5779600(if u sell for Rs.60 lakhs) on which tax of 20% would come to Rs.1155920...so u can follow procedures mentioned by Hemanth Sir to avoid tax..

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