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You have been gifted a plot of land by your father. You need money
in a hurry and have decided to sell this land.Your
worry….Will you be taxed for the profit (capital gain) you get when you sell
the plot of land.
This land
has been gifted to you by your father. Under Section 56(2) gifts from relatives
(father) are not taxed in your hands.
What if you sell the plot of land?
Yes…you have to pay tax on the capital gains got by the sale
of the plot of land. If the land has been sold after 3 years it is a long term
capital gain and you have to pay a long term capital gains tax on it.
Your long term capital gain is taxed at 20% with an
indexation benefit.
What if the plot of land was bought by
your father in 1970?
If the plot of land was bought in 1970 then you would have to
pay long term capital gains tax at :
Long term Capital gain = Selling price of the house –Purchase
price of the house.
This means you would have to pay a very high LTCG as the cost
of the plot of land would have been very less in 1970.To solve this problem you have the CII index managed by the
CBDT (Central Board Of Direct Taxes)
|
Financial Year
|
Cost of Inflation Index (CII)
|
|
1981 - 82
|
100
|
|
1982 - 83
|
109
|
|
1983 - 84
|
116
|
|
1984 - 85
|
125
|
|
1985 - 86
|
133
|
|
1986 - 87
|
140
|
|
1987 - 88
|
150
|
|
1988 - 89
|
161
|
|
1989 - 90
|
172
|
|
1990 - 91
|
182
|
|
1991 - 92
|
199
|
|
1992 - 93
|
223
|
|
1993 - 94
|
244
|
|
1994 - 95
|
259
|
|
1995 - 96
|
281
|
|
1996 - 97
|
305
|
|
1997 - 98
|
331
|
|
1998 - 99
|
351
|
|
1999 - 00
|
389
|
|
2000 - 01
|
406
|
|
2001 - 02
|
426
|
|
2002 - 03
|
447
|
|
2003 - 04
|
463
|
|
2004 - 05
|
480
|
|
2005 - 06
|
497
|
|
2006 - 07
|
519
|
|
2007 - 08
|
551
|
|
2008 - 09
|
582
|
|
2009 - 10
|
632
|
|
2010 - 11
|
711
|
|
2011 - 12
|
785
|
|
2012 - 13
|
852
|
|
2013 - 14
|
939
|
|
2014-15
|
1024
|
You might have noticed that the earliest year in the table is
FY 1981-1982.This is the financial year (base year) of the CII Index.
So what is indexation benefit of CII Index?
Prices of goods such as fruits, vegetables, meat, services
such as transport, houses, garments and so on increase with time. This is
inflation.Indexation basically means you take the effects of inflation
into consideration while calculating tax on your capital gains.
Understand LTCG tax on sale of plot of
land:
Let us consider your father bought the land for INR 25000 in
1970.You have sold it for INR 20 Lakhs in September 2014.What is the LTCG tax
you have to pay on your capital gains?
LTCG tax on the sale of the gifted plot
of land:
You can calculate your LTCG as the :
Long term Capital gain = Selling price of the land – Purchase
price of the land/cost of acquisition
OR
Long term Capital gain = Selling price of the land – Fair
market value of the plot of land in 1981(Indexed purchase price of the land).
CII for the year of sale (FY 2014 – 2015): 1024
CII for the year of purchase (FY 1981 –
1982): 100
(CII
for the year of purchase)
Indexed purchase price of the house
= INR 25000 * 1024
100
= INR 2,56,000.
Long Term Capital gain = Selling price of the
land – Indexed purchase price of the land.
Long Term Capital gain = INR 25,00,000 – INR
2,56,000 = INR 22,44,000.
Your Long Term capital gain is taxed at 20%
= INR
22,44,000 * 20% = INR 4,48,800.
What if your land was taxed at cost of
acquisition?
Long term Capital gain = Selling price of the
land –Purchase price of the land/cost of acquisition
Long term Capital gain = INR 25,00,000 – INR
25,000 = INR 24,75,000.
Your
long term capital gain is taxed at 20%
= INR 24,75,000 * 20% = INR 4,95,000
You save INR 4,95,000 – INR 4,48,800 which is
INR 46,200 on the LTCG tax by availing indexation benefits on selling your
gifted land.
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