capital gain tax on sale of land

VijayV 1
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Dear Pankaj, I was allotted a Gov't plot in 1982 and completed the installment payments in 1986. I got it registered on my name only in 2007 after paying a stamp duty of Rs.1,20,000 (as prescibed by Gov't). I am planning to sell the plot for Rs.18,00,000 in 2011. Brokerage comes to Rs.1,00,000/- lump sum & without receipt.I have also spent Rs.50,000 on fencing over a period of ten years and I do not have receipts for the same.My questions are: 1)From when the indexation will be taken? (1982 or 1986 after payment of full money). 2)Can I consider the brokerage (without receipt) and fencing charges (that also no receipts) while calculating the income tax? 3)lastly which is advisable,to go for indexation method (20%) or without indexation(10%). I have two options either to go for REC bonds or go for Bank FD's which can fetch more % of interest. Please advise.

indexation brokerage residential-plot long-term-gains capital-gains income-tax

Thanks a lot Pankaj. All points are very clear. But I request you to elaborate the first point a little more. Let me put it first & you may please correct the same. I will have to take 2007 as year of possession or I can take 1982,the year of allotment? Kindly clarify. Since I got it registered by paying stamp duty Rs.1,20,000/-, can I take the total cost as Rs.1,20,000 + 25,000 = 1,45,000/- (I forgot to mention the purchased cost was Rs. 25,000/-). LTCGain will be 18,00,000 - 1,45,000 = 16,55,000 without any indexation. Is it correct? Please advise

VijayV•

There have been multiple instances where court has approved year of allotment for computation of LTCG. Specially in case with Govt plots, it works fine.

Pankaj Batra•

Total indexed cost will have to computed with different method and is not straight forward. Please see below

Purchase Year = 1986-87, Purchase Cost = 25000, Cost Inflation Index (CII) for purchase year = 140
Registration Year = 2007-08, Registration Cost = 120000, CII for Registration year = 551

Sale Year = 2011-12, CII for sale year = 785

Indexed Cost = 25000 x (785/140) + 120000 x (785/551) = 311141 Long term capital gain = 1800000 - 311141 = 1488859
Income tax on capital gain = 1488859 x 20% = 297771.8

Pankaj Batra•
1 Answers
  1. You can consider date of possession of plot for indexation cost purposes. Further indexed cost of stamp duty/registration can also be added.
  2. Brokerage without receipts cannot be considered in cost. Fencing charges won't also be added as its not a construction cost.
  3. You will have to go with 20% indexation method. 10% method w/o indexation does not apply for long term gains from property.
  4. To save income tax on LTCG, capital gain bonds can be bought from REC or NHAI u/s 54EC. There is no tax benefit if gains are invested into bank FD.
Pankaj Batra5212
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