A piece of advice on investing which i read recently....
Question: I purchased an approved plot in October 1980 at Adambakkam for Rs. 10,000 and this property comes under the Corporation. In 1981, I constructed a building measuring about 700 sq. ft at a total cost of Rs. 1,00,000 and constructed first floor in 1983 measuring 750 sq. ft @ Rs. 1,50,000. Approximately I spent about Rs. 2.75 lakhs towards the cost of building and land. Now, I am planning to dispose off my above property and understand that the building will fetch about Rs. 20 lakhs. I seek your clarification:
1) If I invest the entire sale proceeds in purchasing a new flat, will I have to pay capital gain tax.
2) Even if I invest the entire cost in the new building, I may have to avail further loan facilities from some financial institutions.
3) The market value as on April 1981 was Rs 1.5 lakhs for ground floor
4) Brokerage: Rs. 50,000
5) I am ready to invest part of my sale proceeds to buy bonds to avoid tax. How best can I invest my money and avoid paying a huge tax?
A Chartered Accountant, replies:
Upon two assumptions, the following Capital Gain is made out: Fair market value of land as on 01-04-1981 remains at Rs. 10,000; The ground floor was constructed on or after 1-04-1981.
Sale consideration 20,00,000
Less: Brokerage 50,000
Net Consideration 19,50,000
Less: Indexed cost of acquisition
Land (10,000 x 480/100) 48,000
Ground Floor (1,00,000 x 480/100) 4,80,000
(1,50,000 x 480/100) 6,20,690
Long Term Capital Gains (LTCG) 8,01,310
In case the entire long-term capital gain is invested in another residential property, you may not be liable to Capital Gains Tax. On the other hand, you may also choose to invest the Long Term Capital Gain partly in residential property and partly in notified Capital Gains bonds to save tax. The choice is yours.