1.My father now a senior citizen (68 yrs +)bought a residential flat in June, 1984 at a purchase price of Rs.1,50,000 2.Some renovation of the same flat was done in February 1999 at a cost of Rs. 1,50,000 3.He sold this flat in June 2010 at approx.Rs.50,00,000 and purchased a new flat whose registration was completed in Dec,2010 at a couple of lakhs more than the amount he got from the sale of previous flat. 4.However, at this time he owned another flat jointly with my mother. 5.Kindly advise:- a)As the entire sale proceeds from the first flat were utilised in buying another residential flat,whether the entire capital gain could be claimed as exempt from tax. b)If the above is unacceptable, can exempt of tax from capital gain be obtained by investing the entire taxable amount in infrastructure bonds like that of NHAI etc.
1 Answers
Below is the calculations for LTCG and income tax:
Purchase Year = 1984-85
Purchase Cost = 150000
Cost Inflation Index (CII) for purchase year = 125
Renovation Year = 1998-99
Renovation Cost = 150000
Cost Inflation Index (CII) for Renovation year = 351
Sale Year = 2010-11
Selling price = 5000000
CII for sale year = 711
Indexed Purchase/Construction Cost = 150000 x (711/125) + 150000 x (711/351) = 1157046
Long term capital gain = 5000000 - 1157046 = 3842954
Income tax on capital gain = 3842954 x 20% = 768590.8
Under section 54, if one buy another residential property for a amount equal or more than capital gains (~38.5 lakh in your case), then there won't be any income tax payable on long term gains.
Even if you own another property already, still income tax benefit is applicable u/s 54.
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