1. Capital gain is the difference between Sale consideration MINUS the indexed cost of acquisition of the property.
2. First and foremost, if the property had been purchased/constructed prior to 1.4.2001, then the Fair Market value of the said property as on 1.4.2001 is to be obtained from a Government Approved Valuer.
3. Once the Fair Market Value as on 1.4.2001 is obtained then, that value has to be multiplied by the cost index applicable for the Financial year 2018-19 (if you are going to sell the property during the current financial year) DIVIDED by 100. This is because as on 1.4.2001 the base index is 100. The cost index for the financial year 2017-18 was 272. The index for the F.Y. 2018-19 has not been notified by the Central Board of Direct Taxes so far.
4. Assuming that the Fair Market Value as on 1.4.2001 was Rs. 20 lakhs. The Indexed cost of acquisition in the Financial year 2017-18 would be = Rs. 2000000 x 272/100 = 5440000. (This calculation will undergo change depending upon the FMV as on 1.4.2001 and also the cost index that will be announced by the Govt. for the year 2018-19).
5. If the sale consideration is Rs. 70 lakhs, then the capital gain would be Rs. 7000000 minus 5440000 = 1560000/-
6. Capital Gains Tax is to be paid at 20% on Rs. 1560000/-, which comes to Rs. 3,12,000/-.
7. This tax can be saved provided the entire capital gain of Rs. 15.60 lakhs is invested in National Highway Authority of India Bond or Rural Electrification Authority Bond. This amount is to be invested for 5 years and will get 5.25% interest p.a. which interest is taxable.
8. Since it is all hard earned money, even if one gets very less interest of 5.25% and has to pay tax on that interest income, (exempt upto Rs. 50000/- in case of senior citizens), it is still worth to deposit the amount, instead of paying the tax of Rs. 3.12 lakhs. After 5 years, the amount in the hand will be much higher. This is because the major amount of Rs. 3.12 lakhs does not go out of the hand.
9. Instead of deposit, if it is decided to pay the capital gains tax, then the same has to be paid (after adjusting the 1% TDS deducted by the buyer) first in the name of your mother and the remaining balance can be distributed amongst you.
10. As the property will be sold for more than Rs. 50 lakhs, the buyer will deduct 1% of the Sale Consideration towards Tax Deduction at Source (TDS) and will give to the seller the Challan evidencing the remittance of the TDS to the Government.
