I had purchased a plot in Rajasthan in 1987 and the registered price was ₹10,000. If I sell it in 2023, how is the income tax on capital gains computed? Is there any way to avoid capital gains?

Ashwani Kumar Punj 

We assume that plot in Rajasthan is not rural agricultural land as per section 2(14) of the Income-tax Act, 1961. Hence, the transfer would classify as a transfer of capital asset subject to tax.

A capital asset, held by a taxpayer for more than 24 months immediately preceding the date of its transfer, is treated as a long-term capital asset and subject to tax at 20 per cent, excluding surcharge (if applicable) and cess.

This transaction would be eligible for a deduction of cost of acquisition and improvement on which indexation benefit would apply. Further, any expenses related to transfer of the plot may also be claimed as a deduction from the sale proceeds.

As per the Act, the cost of acquisition for the property held before April 1, 2001, will be;

1.   Cost of acquisition or

2.   FMV as on April 1, 2001, whichever is higher.  

In case of transfer of long-term capital assets, indexed cost of acquisition and indexed cost of improvement shall be deducted from the full value of consideration. The base year for computation of capital gains has been shifted from 1987 to 2001 with effect from Financial Year 2017-18. Thus, if any capital asset (acquired before April 1, 2001) is transferred, then assessee has an option to take its cost of acquisition as fair market value as on April 1, 2001. As the plot of land has been acquired prior to April 1, 2001, the individual may want to explore obtaining a Valuation Report of the plot as on April 1, 2001, for arriving at the cost of acquisition.

The individual may be eligible to avail benefits under sections 54, 54EC, 54EE under the Act by making investments in residential house property, investment in NHAI/REC bonds, investment in units of a specified fund. This would be subject to the prescribed conditions and thresholds.

The writer is a Partner with BDO India LLP

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