A reader desires to know the way actual property taxation works for resident people after the modification to the Finance Invoice 2024. Listed below are the small print.
- I purchased land at a worth of 5L in 1995.
- The valuation report by the federal government registered and reputed valuer with all my worth additions (fencing, water nicely, small home for caretaker and so on) is valued at 20 L as of 1.4.2001.
- Nevertheless, circle fee for 2001 just isn’t identified, it might be that it’s lower than 20 L. I’ve to verify with the registrar’s workplace if they’d a circle fee for this distant space these days for the years 2000-01″.
- Promoting it now for 4 Crores.
Allow us to now compute the tax with and with out indexation.
With out indexation
- Precise capital acquire = Rs. 3.8 Crores.
- 12.5% tax on this plus 4% cess = Rs. 49.4 Lakhs.
With indexation
- The fee inflation index (CII) in 2001 was 100.
- CII for the present FY (2024-245) is 363
- So the listed buy worth is: 20 Lakhs X 363/100 = 72.6 Lakhs
- Listed capital acquire = Rs 4 Crores minus Rs. 72.6 Lakhs = Rs. 3.274 Crores,
- 20% tax on this acquire plus 4% cess = Rs. 68.099 Lakhs
We are able to now select the decrease of the 2 strategies and pay Rs. 49.4 Lakhs as tax. Choices to decrease this tax embody shopping for part 54EC bonds or constructing/shopping for one other home.
Why did the indexation possibility lead to a better tax on this instance?
We had proven earlier that absolute returns need to be practically thrice increased than inflation for the 12.5% tax rule to be useful!
Let X = % capital acquire (sale worth – buy worth)/buy worth.
Y = % change in the associated fee inflation index
(CII within the yr offered minus CII within the yr bought)/CII within the yr bought
If X> 2.667*Y, the 12.5% tax is beneficial
If X < 2.667*Y, we can pay extra tax with 12.5% than with 20% with indexation.
That is summarised on this graph.
On this instance,
X = 19000%
Y = 263%
X/Y = 72.74 occasions! So, the 12.5% tax rule is beneficial.
Different FAQ
- Will there be indexation from 1995 to 2000? => No. You’ll have to discover the valuation on 1st April 2001 utilizing an expert actual property valuer and use that as the acquisition worth (for properties bought earlier than April 2001).
- Or do I want to seek out out if there was a circle fee in 2000? => No.
- Will the government settle for the valuer report of honest market worth as of 1.4.2001? => Sure. There isn’t a want to indicate this until requested for by the earnings tax division if there’s a question on the IT return.
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