Capital gain on sale of house property

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Ravindra Mahale (Querist)
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08 December 2013 Sir, If a person purchase a house property in Aug.2005 and sold it in nov.2013 how to calculate capital gain. What expense can added in purchase price loan brokerage etc. If he wants purchase new residence from the money what is time limit. what type of expenses he can claim to reduce his capital gain tax . Thanks

Manish Bhandari

Manish Bhandari (Expert)
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08 December 2013 Your purchase value will be - Purchase Price+Stamp Duty+ Registartion + Brokerage + Improvement (Renovation, Repairs) Capital Cost (No Interest or loan amount allowed)
Calculation will be Purchase amount * Index of 2013-2014 / Index of 2005-2006. From this deduct sale amount the diff is gain.
Invest this gain in another property 1 year prior or two years later from the date of transaction. If not invested depoist in a capital gain scheme account before six months from date of transaction or filing the return.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 To calculate the capital gains on the sale of a house property in India and understand the provisions for reinvestment under Section 54 of the Income Tax Act, 1961, here are the steps and considerations:

### Calculation of Capital Gains:

1. **Determine the Cost of Acquisition**:
- Purchase Price: The actual amount paid to acquire the property in August 2005.
- Stamp Duty: The amount paid for stamp duty at the time of property registration.
- Registration Charges: Fees paid for registering the property in the buyer's name.
- Brokerage: Commission paid to a broker, if any, for facilitating the property purchase.
- Improvement Costs: Costs incurred for renovation or repairs that enhance the property's value. Note that routine repairs and maintenance may not be included.

**Total Cost of Acquisition** = Purchase Price + Stamp Duty + Registration Charges + Brokerage + Improvement Costs (if any)

2. **Indexed Cost of Acquisition**:
- To account for inflation, the cost of acquisition is adjusted using the Cost Inflation Index (CII).
- CII for the year of purchase (2005-06) and the year of sale (2013-14) can be found from the Income Tax Department's website or notified annually.

**Indexed Cost of Acquisition** = Total Cost of Acquisition × (CII of the year of sale / CII of the year of purchase)

3. **Calculate Long-Term Capital Gain**:
- Long-term capital gains apply since the property was held for more than 3 years.
- **Capital Gain** = Sale Price - Indexed Cost of Acquisition

### Reinvestment under Section 54:

1. **Time Limit for Reinvestment**:
- **Purchase of New Property**: The entire amount of capital gains (or proportionate to the amount not utilized) must be reinvested in another residential property:
- **One year before** the sale of the property being transferred, or
- **Two years after** the sale date.
- Alternatively, the gains can be deposited in a Capital Gains Account Scheme (CGAS) before the due date of filing the income tax return (typically July 31 of the assessment year) or within 6 months from the sale date, whichever is earlier.

2. **Utilization of Capital Gains**:
- The capital gains deposited in the CGAS can be utilized for purchasing a new property within the specified time frames.
- If the entire amount is not reinvested or deposited in CGAS, the remaining portion is taxable.

### Claimable Expenses to Reduce Capital Gains:

- **Legal Expenses**: Costs incurred for legal services in connection with the property transaction.
- **Brokerage/Commission**: Any commission paid to sell the property.
- **Improvement Costs**: Qualifying improvement expenses that enhance the property's value (as mentioned above).

### Summary:

- Ensure all expenses related to acquisition and improvements are documented with supporting invoices and receipts.
- Use the Cost Inflation Index to calculate indexed costs accurately.
- Reinvest or deposit the capital gains within the specified timelines to claim exemptions under Section 54.

For precise calculations and compliance, it's advisable to consult with a qualified tax advisor or chartered accountant who can provide personalized advice based on the specific details of the property transaction and your financial situation.

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