Property Query & Solution - 1

I PURCHASED A FLAT IN THANE IN 1978. AFTER LIVING THERE FOR MORE THAN THREE DECADES, RECENTLY WE DECIDED TO SELL IT. WE HAVE AN OFFER AS FOLLOWS: PURCHASE VALUE RS.26,000 IN APRIL 1977-78; EXPECTED SALE VALUE RS.40 LAKH IN APRIL 2013; STAMP DUTY WILL BE PAID ON TH

E SALE VALUE AS PER THE LATEST INDEX.

                MY QUERY IS:

1) WHAT WILL BE THE CAPITAL GAIN?

2) WHAT TAXES DO I INCUR IF I DO NOT WANT TO INVEST AGAIN IN REAL ESTATE?

3) OTHER THAN REAL ESTATE INVESTMENT, DO WE HAVE ANY OTHER LONG-TERM CAPITAL GAINS LIKE INVESTMENT BONDS; WHAT IS THEIR LOCK-IN PERIOD?

4) IF I INVEST THE BALANCE IN BANK FDS DOES IT ATTRACT INCOME TAX? IF SO, HOW MUCH?

5) AFTER I BOUGHT IT IN 1977, I HAVE PERIODICALLY INCURRED MAJOR EXPENSES IN REPAIRS AND ADDITIONS. CAN I SET OFF THESE AMOUNTS WHILE CALCULATING CAPITAL GAINS?

PLEASE GUIDE US ON THESE POINTS. IS IT BETTER TO PAY THE TAX AS WE DO NOT HAVE ANY REGULAR INCOME AND KEEP THE BALANCE IN BANK DEPOSITS AND USE IT FOR DAY-TO-DAY EXPENSES? WE DO NOT WANT TO AGAIN INVEST IN HOUSE PROPERTY.

1) The Capital Gains is any profit (gain) arising from transfer (sale, exchange or relinquishment) of capital asset. Long Term Capital gains in case of immovable properties (asset held for 36 months and above), equals to the total value received by sale of property (as per sale deed), less the acquisition cost, including stamp duty and registration costs considered at indexed value (calculated using Cost Inflation Index), less cost of any improvement made to the capital (bills needed to substantiate the expenditure), considered at indexed value (calculated using Cost Inflation Index), and less transfer charges. Cost Inflation Index (CII) is an index notified by Central Government of India every year to arrive at present value of money.

2) The Capital Gains Tax is calculated at 20% flat on the capital gains, in case of long term capital gains.

3) There are certain specified investments under Section 54EC of IT Act available wherein the capital gain amount can be invested to claim exemption from capital gains tax. The assessee has to deposit capital gains amount within six months of transfer, to be eligible for the exemption from capital gains tax. These bonds normally come with 3 to 5 years of lock-in period.

4) If you keep the balance amount (after paying capital gains tax) in Fixed Deposit, while the principal amount is not taxed, the interest earned is taxable. The interest earned will be added to the assessee’s income while computing the income tax payable.

5) The expenditure on the capital such as major repairs, upgradation etc. can be set-off while calculating the capital gains, but such expenses need to be substantiated with proper bills.

As per your needs, you need to decide whether it is wise to invest in bonds to avoid capital gains tax or pay capital gains tax and keep net amount in FDs and to derive regular flow of income for your day to day needs.

(Source: http://www.thehindu.com/todays-paper/tp-features/tp-propertyplus/ask-us/article4886752.ece)