Indexing for tax purposes.

POSTED BY Vijay Sethi ON August 30, 2012 6:48 am COMMENTS (11)

I bought a piece of land in 1988 for 6.5 lakhs. I am going to sell it in 2012 for appox 6 crores. I want to know how to index the price of land at the time of selling and how much will owe in capital gains. 

I also understand that I can save on Capital gains by reinvesting in real estate. I shall not be an end user.

Any advise will be greatly appreciated. Thanking all in advance.

11 replies on this article “Indexing for tax purposes.”

  1. Dear Vijay, the basic info is already provided. Just to add in the above info, the real estate or the property as discussed above should be a residential house & as the capital gains are booked on the sell of a plot, you w’d have to invest full 6 Crore Rs. or the amount left over after investing in Capital Gain Tax Saving bonds.

    Thanks

    Ashal

  2. Lokesh Jain says:

    Dear Vijay,

    First determine your financial year in which you bought. Was it 1987-88 or 1988-89?. The cost inflation index for 1987-88 was – 150 and for 1988-89 – 161. Accordingly, as you will sell the land, you will only know the cost inflation index for FY – 2012-13, after March, 2013. So you exactly need to wait till then.

    Your formula for calculation would be –
    Purchase Price * FY 2012-13 Cost inflation index / Year of purchase cost inflation index.

    The proceeds you will need to invest in REC or NHAI bonds or buy another property to save the tax.

  3. You can use this article for calculation, https://www.jagoinvestor.com/2009/05/how-to-calculate-capital-gains-and-what_7801.html

    for you the capital gains would be very high , Either you can use it to buy some other real estate property to save the tax , or you can invest it in NHAI or REC bonds.

    1. vijay says:

      Manish,
      Thank you for a very prompt reply.
      I have made use of the tutorial and have come to a very unpleasant figure calculated @ 20% after indexing.
      Now your tutorial says that in some cases we can calculate @10% also, if we calculate on that basis I stand to gain 50L+. The govt won’t allow that, so what am I doing wrong?
      My plot is residential.

      mannish, thank you in advance.

      1. They will allow 10% .. you are free to choose 10% or 20% model , which ever is less

      2. Dear Vijay, a small correction in Dear Manish’s reply, In case of non real estate capital assets like Gold, Paintings, Jewelry, Debt MFs…. this 10 or 20% tax rate option is available.

        In case of real estate, the option is not there & you w’d have to pay tax @ 20% rate after calculating indexed capital gains.

        Thanks

        Ashal

    2. vijay says:

      dear Lokesh and Ashal,
      Thanks a lot for very prompt action. This a swell forum where knowledgable people help very well.
      Mannish had already pointed me in the right direction and the tutorial he pointed me to at least gave me a rough area as to where I stand vis a vis my capital gains.
      I am based in USA but hold a PIO.
      In India I am based in Gurgaon but shall be there in Nov. is it possible for any of you to recommend a CA in Gurgaon or will that be against the forum rules?

      Thanks in advance.

      1. Dear Vivek, recommending some person or product is not against the forum rules but interestingly I am in Ahmedabad, so can’t help on this CA thing. Please contact your local friends in Gurgaon.

        By the way, why do you need a CA?

        Thanks

        Ashal

        1. vijay says:

          Hi Ashal,
          I need a CA for getting tax as well as investment advise. I am not in touch with various investment options available in India.

          1. Dear Vijay, as you need both tax planning as well as investment advise, why are you not hiring a paid financial planner for yourself. It ‘ll be more beneficial to you.

            Thanks

            Ashal

          2. vijay says:

            Hi Ashal,
            My replies are not coming in chronological order. I am not sure if I am the culprit. Can they be put as per the date and time? Please help.
            Now regarding the C F A, do you have any recommendation in gurgaon? How much do they charge for their services. Do I need to retain a cfa or I have to pay a one time charge?
            I do have a PAN card,NRO and NRE accounts.

            I have two more queries but I shall start new strings for each.

            Regards.

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