Please find below computation of long term capital gains and income tax:
Purchase Year = 2001-02
Purchase Cost = 394000 (Added stamp duty)
Cost Inflation Index (CII) for purchase year = 426
Sale Year = 2011-12
Selling price = 12300000
CII for sale year = 785
Indexed Purchase price = 394000 x (785/426) = 726033
Long term capital gain = 12300000 - 726033 = 11573967
Income tax on capital gain = 11573967 x 20% = 2314793.4
As your father is buying a residential flat within two years of selling the plot, income tax benefit can be availed under section 54F.
To save tax fully, new house cost must be more than sale consideration plot (1.23 cr here). New house cost can include registration charges, stamp duty, preferred location charges etc.
In case whole sale consideration is not used in buying new flat, some income tax will have to be paid.
Lets say total cost for new flat is 1.14 cr, then 20% income tax will have to be paid on 1.1574 - (1.1574 x 1.14/1.23) crore.
if new property is not purchased by return filing of the financial year in which capital gain occurred, then amount from sale consideration has to be deposited into capital gain account scheme. Payments for purchase of new flat should be done from this account.
Section 54F has some condition for applicability. These should be followed:
- Possession of new flat must be taken within two years from sale of plot.
- Person should not be owning more than one residential house at the time of buying new flat.
- If total residential houses owned by person is two (including new flat), he should not buy another one within next three years of purchase.
- New flat should not be sold before next three years.
