Capital Gain : Long term
This query is : Resolved
08 February 2021
we were staying in rental house from 1979 after redevelopment we got a flat from MMRD 10 years ago now planning to sell the same. want to know the long term capital gain tax . While buying rental flat we paid 2000 as deposit and now planning to sell the flat for 40 lakhs .
to SAve capital gain tax what measure has to be taken
to SAve capital gain tax what measure has to be taken
09 February 2021
Can you please clarify the following:
1) What is the total amount paid for buying the above mentioned rental house?
2) What is the actual year of allotment of land?
1) What is the total amount paid for buying the above mentioned rental house?
2) What is the actual year of allotment of land?
18 July 2024
To calculate the long-term capital gains tax and explore measures to save tax on the sale of your flat obtained from MMRD (Mumbai Metropolitan Region Development Authority), here’s a detailed approach:
### Calculation of Long-Term Capital Gains:
1. **Cost of Acquisition**: Since you obtained the flat from MMRD through redevelopment, the cost of acquisition for the purpose of computing capital gains will be considered as:
- The amount of deposit paid at the time of acquiring the flat.
2. **Indexed Cost of Acquisition**: Adjust the cost of acquisition for inflation using Cost Inflation Index (CII) to calculate indexed cost:
- Indexed Cost = Cost of Acquisition × (CII of year of sale / CII of year of acquisition or improvement)
3. **Net Sale Consideration**: This is the actual amount you receive from the sale of the flat.
4. **Capital Gains Calculation**: Long-term capital gains are computed as:
- Capital Gains = Net Sale Consideration - Indexed Cost of Acquisition
- Long-Term Capital Gains Tax = 20% of Capital Gains (plus applicable cess)
### Measures to Save Capital Gains Tax:
To save on capital gains tax, you can consider the following measures:
1. **Invest in Capital Gains Bonds (Section 54EC)**:
- Invest the capital gains amount into specified bonds (such as REC or NHAI bonds) within 6 months of the sale to claim exemption from capital gains tax under Section 54EC. This exemption is available up to Rs. 50 lakhs in a financial year.
2. **Purchase of Residential Property (Section 54)**:
- Invest the capital gains amount in purchasing another residential property either 1 year before or 2 years after the sale of your flat, or construct a residential property within 3 years from the date of sale. Ensure compliance with the timelines and conditions specified under Section 54.
3. **Joint Investment with Family Members**:
- If eligible, consider joint investment with family members to pool resources and utilize the exemption limits effectively under Section 54.
4. **Consult a Tax Advisor**:
- Given the complexities involved in capital gains tax calculations and exemptions, it’s advisable to consult with a tax advisor or chartered accountant. They can provide personalized advice based on your specific situation and help optimize your tax liabilities.
### Documentation and Compliance:
- Maintain all relevant documents related to the acquisition, improvement (if any), and sale of the flat.
- Ensure timely investment in specified bonds or residential property to claim exemptions under Sections 54 and 54EC.
- File your income tax returns accurately, disclosing the capital gains and claiming exemptions as applicable.
By planning your investments and adhering to tax-saving measures under the Income Tax Act, you can effectively reduce your tax liability on the capital gains from the sale of your flat obtained from MMRD.
### Calculation of Long-Term Capital Gains:
1. **Cost of Acquisition**: Since you obtained the flat from MMRD through redevelopment, the cost of acquisition for the purpose of computing capital gains will be considered as:
- The amount of deposit paid at the time of acquiring the flat.
2. **Indexed Cost of Acquisition**: Adjust the cost of acquisition for inflation using Cost Inflation Index (CII) to calculate indexed cost:
- Indexed Cost = Cost of Acquisition × (CII of year of sale / CII of year of acquisition or improvement)
3. **Net Sale Consideration**: This is the actual amount you receive from the sale of the flat.
4. **Capital Gains Calculation**: Long-term capital gains are computed as:
- Capital Gains = Net Sale Consideration - Indexed Cost of Acquisition
- Long-Term Capital Gains Tax = 20% of Capital Gains (plus applicable cess)
### Measures to Save Capital Gains Tax:
To save on capital gains tax, you can consider the following measures:
1. **Invest in Capital Gains Bonds (Section 54EC)**:
- Invest the capital gains amount into specified bonds (such as REC or NHAI bonds) within 6 months of the sale to claim exemption from capital gains tax under Section 54EC. This exemption is available up to Rs. 50 lakhs in a financial year.
2. **Purchase of Residential Property (Section 54)**:
- Invest the capital gains amount in purchasing another residential property either 1 year before or 2 years after the sale of your flat, or construct a residential property within 3 years from the date of sale. Ensure compliance with the timelines and conditions specified under Section 54.
3. **Joint Investment with Family Members**:
- If eligible, consider joint investment with family members to pool resources and utilize the exemption limits effectively under Section 54.
4. **Consult a Tax Advisor**:
- Given the complexities involved in capital gains tax calculations and exemptions, it’s advisable to consult with a tax advisor or chartered accountant. They can provide personalized advice based on your specific situation and help optimize your tax liabilities.
### Documentation and Compliance:
- Maintain all relevant documents related to the acquisition, improvement (if any), and sale of the flat.
- Ensure timely investment in specified bonds or residential property to claim exemptions under Sections 54 and 54EC.
- File your income tax returns accurately, disclosing the capital gains and claiming exemptions as applicable.
By planning your investments and adhering to tax-saving measures under the Income Tax Act, you can effectively reduce your tax liability on the capital gains from the sale of your flat obtained from MMRD.
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