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.
3(a). If the property had been purchased after 1.4.2001, one can straight away take into account the purchase consideration paid + stamp duty paid as cost of acquisition. Then work out the indexation depending upon the year of purchase and year of sale and arrive at the capital gains amount.
4. Capital Gains Tax is to be paid at 20% on the amount of capital gains.
5. This tax can be saved provided the entire capital gain (maximum permissible to be invested is Rs. 50 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.
6. NHAI / REC BONDS are still available. NHAI Bonds can be obtained by approaching HDFC Bank.
7. 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 capital gains tax. After 5 years, the amount in the hand will be much higher. This is because the major amount towards tax does not go out of the hand.
8. If the property is 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.
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).
10. If it is decided to go in for new purcase, then it has to be purchased within 1 year from the date of sale.
11. If it is decided to go in for new construction, then it has to be done within two years from date of sale.
12. If it is decided to go in for rent (instead of purchase or new construction) then, after investing the amount of capital gains in NHAI Bond, rest of the amount can be kept in the Fixed Deposit. The interest on fixed deposit, naturally will attract income tax.
