CGT calculation upon selling a flat and buying a plot+house construction...

Hi, I have a flat at chennai purchased on the year 2004 for 13.5 lakhs and have presently sold it out on Aug-2011 for 38 lakhs. I also closed a home-loan of 10 lakhs from the profit of the sale. Now i am going to buy a plot of land (for about 30 lakhs including registration tax) and going to construct a house on it which would cost an additional 25 lakhs totaling 55 lakhs.

As the profit from the house is under LCGT, its present cost comes to 20.5 laks after indexation. So can i take the actual profit from the sale to be (3800000 - 2050000 - 1000000) = 750000?

Would this mean that i need not any pay any CGT as the cost of plot+construction far exceeds the profit from sale of my flat? Thanks, Chandramouli

asked Aug 09 '11 at 10:10 by n_mouli 6113

As per calculations below, indexed purchase cost comes as 22 lacs and not 20.5 as you mentioned. Please check your computation again.

Purchase Year = 2004-05
Purchase Cost = 1350000
Cost Inflation Index (CII) for purchase year = 480

Sale Year = 2011-12
Selling price = 3800000
CII for sale year = 785

Indexed Purchase price = 1350000 x (785/480) = 2207813
Long term capital gain = 3800000 - 2207813 = 1592187
Income tax on capital gain = 1592187 x 20% = 318437.4

So, as per section 54, you need to invest this LTCG (15.9 lacs) into new property to save tax fully. So even if you spend 16 lacs on new plot + registration + construction, no income tax would be payable.

Also, to clarify, there is no benefit available on home loan payment from long term capital gains.

answered Aug 09 '11 at 19:17 by Pankaj Batra 5.2k320

Thanks a lot for the clarifications. Yes i made a mistake of taking CCI for 2010-11 instead of 2011-12.
(Aug 09 '11 at 21:16) n_mouli

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Asked: Aug 09 '11 at 10:10

Seen: 3,132 times

Last updated: Aug 09 '11 at 21:16