Indexation of Cost of Improvement for computing Cap Gains Tax

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  1. daxesh_27565

    daxesh_27565 New Member

    I purchased a residential property in 1997. TRI PAKSHI KARAR was done & registered on a stamp paper of Rs. 10,420/- on 15.04.1997 & sale deed was done & registered on 26.06.2000 of Rs. 1,04,180/-. Moverover extra work carried out by a builder cost to Rs. 2,91,435/- for which i am having receipts of this payments dated 15.10.1997.
    I taken a loan from my company(IPCL) for this purchase. I repaid full principal amount of 3,25,000/- with full interest amount of 60,000/-.
    I sold this property on 06.05.2014 at the amount of Rs. 26,01,111/-. For selling this property, i paid Rs. 1,00,000/- to estate broker.
    Now i planned to purchase new residential property befor FY 2014-15 to avail LTCGT exemption under section 54. I kindly request your honour to help me, what will be the long term capital gain tax amount which i required to be invest in new residential property.
    Also i want your expert advice that, after utilizing LTCGT amount in purchasing new residential property, can i purchase one more residential property from remaining amount of sale proceed of my old property and from my savings ?
    Also, i want to know the detail break up, how to calculate LTCGT amount considering following facts.
    1. Amount of stamp paper used on old & new property.
    2. Amount of interest paid on loan amount on old property.
    3. Registration charges.
    4. Brokerage paid for selling of old property.
    5. Index cost of acquisition of old property. Please mention that acquisition is to be consider on year1997 (Tripakshi karar done) OR year 2000(Sale deed done).
    6. Index cost of improvement in old property(Extra work carried out of Rs. 2,91,435/-).
    7. Service tax paid on purchase of new property.
    8. Life time maintenence charges paid to builder on new property.


    Thanking You,
  2. gaurav_kumar

    gaurav_kumar Well-Known Member

    All expenses incurred by you at the time of purchase (like Registration, Brokerage charges etc) would be added to the Cost of Acquisition and then the Cost would be indexed.

    Based, on the details shared above, the amounts would be computed as follows:-

    Total Cost of Acquisition = 104180 + 10420 = 1,14,680
    Indexed Cost of Acquisition = 114680 * 1024/331 = 357480

    Cost of Improvement = 291435 * 1024/331 = 9,01,600

    Long Term Capital Gains would be computed as follows:-

    Sale Price - 26,01,111​
    (Less) Expense on Transfer (1,00,000)
    (Less) Indexed Cost of Acquisition (3,57,480)
    (Less) Indexed Cost of Improvement (9,01,600)

    PS: If you have not claimed deduction for interest under section 24, that would also be added to the Cost of Acquisition.
  3. gaurav_kumar

    gaurav_kumar Well-Known Member

    To claim Capital Gains Exemption, the capital gains have to be invested in a single property only.

    You can invest the balance amount in any asset like Real Estate, Gold, Mutual Fund etc.
  4. gaurav_kumar

    gaurav_kumar Well-Known Member

  5. daxesh_27565

    daxesh_27565 New Member

    First of all, I would like to express my lot of thanks to you for giving me expert advice to resolve my problems. Mostly, I cleared my confusion but still some of them are uncleared, which are stated below.

    1. During calculating indexed cost of acquisition, cost inflation index of WHICH YEAR is taken into account for old property (Year 1997 of TRI PAKSHI KARAR OR year 2000 of SALE DEED) & cost inflation index year of new property ?

    2. Brokerage of Rs. 1,00,000/- paid for selling of old property is to be consider as "EXPENSE ON TRANSFER" OR it is to be added to the
    "COST OF ACQUISITION" as stated by you in the first line of your answer given earlier ?

    3. Sir, I am having all receipts of Rs. 2,91,435/- for extra work carried out. Is there any rule that extra work carried out & its payment receipts should be of dated after acquisition date of property ?

    4. Other than sale deed amount, builder is charging me following amount on purchase of new property.
    a) Cost of extra work carried out
    b) stamp paper & registration charges
    c)Service tax
    d)Development charges
    e)Life time maintenance chages.
    Also, I paid Rs. 25,000/- to a broker for purchasing of new property.

    All this amounts can be taken into the account as a "UTILIZATION OF FULL AMOUNT OF LONG TERM CAPITAL GAIN FOR PURCHASE OF SINGLE RESIDENTIAL PROPERTY" to avail full exemption of LTCGT under section 54 ?
  6. gaurav_kumar

    gaurav_kumar Well-Known Member

    1. Brokerage paid for purchasing the property is added to cost of acquisition and brokerage paid on sale is subtracted as expense on transfer.
    2. Cost of Acquisition of 1997 has been taken into account
    3. The receipts for improvement can be of the same date as acquisition
    4. Yes, the total amount paid to builder can be shown as cost of acquisition of new asset and claimed as exemption under section 54
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