Capital Gains Tax on sale of house

nikhil narayana 1
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Hello We had purchased a house in Mumbai for Rs. 21,00,000 in the year Apr, 2000. And, we had sold our house in the year Nov, 2009 for Rs. 79,00,000. We had invested this sum in purchase of agricultural land in Karnataka amounting to Rs. 35,00,000 and have built a house on this property amounting to Rs. 25,00,000 approx.

I want to understand what is my capital gains tax liability and if there is any way I can avoid paying it. If so, then what is the process to exempt from paying Capital gains tax.

Thanks in advance Nikhil

residential-property long-term-gains section-54 capital-gains income-tax
1 Answers

Please find below long term gains and income tax computation:

Purchase Year = 2000-01
Purchase Cost = 2100000
Cost Inflation Index (CII) for purchase year = 406

Sale Year = 2009-10
Selling price = 7900000
CII for sale year = 632

Indexed Purchase price = 2100000 x (632/406) = 3268966
Long term capital gain = 7900000 - 3268966 = 4631034
Income tax on capital gain = 4631034 x 20% = 926206.8

As per section 54, to save tax fully, if you buy a new residential property within two years or construct a new house within three years of sale of old property with cost more than gains amount (46.3 lacs). You already did same by constructing a new house with cost 60 lacs, so income tax should be payable on long term gains.

But here is an issue, the gain arise in 2009-10 financial year, so if the property was not purchased before tax filing of that year (31st July 2010), whole gains had to be invested into capital gain account scheme. If same had not been done and gains were not declared in income tax return, there can be consequences and income tax department may issue tax demand and show cause notice.

Pankaj Batra5212
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