For properties purchased before April 1, 2001, the latest cost inflation figures begin on April 1, 2001, first of all, it is necessary to arrive at what is commonly referred to as the fair market value (FMV) of the property on April 1, 2001. FMV answers the question of what would be the value of the property acquired in 1997 on 1 April 2001. Calculating the capital gain on the basis of an arbitrary FMV can cause problems for an appraiser if the appraiser has a different opinion or doubt about the reported value. Home ⇒ Budget ⇒ Calculation of long-term capital gains with the reference year 2001 The long-term capital gain is calculated by deducting indexed acquisition costs and indexed improvement costs. The government has established a specific calendar year as the reference year and sets the ICI from that base year. In the case of assets acquired before the reference year, the taxpayer has the option of choosing either the fair market value (FMV) on the first day of the reference year or the actual costs to arrive at the indexed costs and calculate the capital gain or loss. Acquisition cost (i.e. ₹2.2 lakh) or FMC as of April 1, 2001 (at your option) / FY02 Cost Inflation Index (CII) (i.e. 100) x CII of the year of sale (cii prescribed for FY22 is 317). If the actual consideration for the sales is more than 10 % less than the value of the stamp duty, the value of the stamp duty shall be deemed to be the presumed consideration for the sales for the purposes of calculating this LTCG/L. The table above gives us an idea of how capital gains vary significantly from one scenario to another.
However, as we have seen above, the taxpayer has the option of choosing between FMV or the cost of acquisition, which would be more advantageous for him. Before the 2017 Finance Act, the reference year for the establishment of the CII was 1981. The 2017 Finance Act postponed the reference year from 1981 to 2001. The reason for this deferral is the actual difficulty imposed on taxpayers in calculating capital gains due to the unavailability of information relevant to the calculation of fmV of assets as of April 1, 1981, which dates back more than 3 decades. FMV is an estimate of the market value of an asset such as real estate or gold, based on what an informed, voluntary, non-pressurized buyer would likely pay to a well-informed, willing, and unpressurized seller in the market. FmV can be retrieved by the registered assessor. Since fmV is generally higher than the initial cost for many assets, the taxpayer takes advantage of taking FMV into account to achieve the indexed acquisition cost. Due to economic factors, the value of the asset or item swells over time. A kilogram of apples costs 200 rupees in 2018, but may have been available in 2001 at less than half the price.
Therefore, it may not be fair to tax the calculated profits without taking this inflation into account. If property prices have risen at a higher rate than the ITC (a very realistic possibility), the amount of tax payable under the 2017 budget would be lower. On properties acquired before 2001, owners will realize significant savings in tax incidence, which are given below for an overview. Our article Change in the impact of the base year on capital gains explains this in detail. So 5 lakh x (426/161) ~ 13 lakh. In other words, real estate grew year-on-year at a rate of about 7.8%. LTCG/L is calculated based on the difference between the net consideration for sales (actual selling consideration less brokerage fees and ancillary selling costs) and indexed acquisition and improvement costs An appraiser must keep the valuation report with other capital gains documents at least 8 years after the relevant valuation year. I am an elderly woman. I had bought a 248 m². ft Commercial apartment in a DDA leasehold building built by the first owner in May 1994 for ₹ 2.2 lakh. Now I intend to sell the same at an expected price of ₹ 25 lakh.
I expect a brokerage fee of 2%, a DDA transfer fee of ₹5 per square foot and a possible transfer fee by the builder for the second transfer @ 5% of the deed of sale. What will be the valuation of the property on April 1, 2001 (as required for a property purchased before 2001) and then its valuation as in FY22 according to the current indexing table? What is the cost of acquiring the property and then calculating the capital gain and possible taxes or investing in 54EC bonds to avoid taxes? Although the change in the base year applies to all capital assets, the impact of the change depends on the nature of the asset and its appreciation over a given period. The long-term capital gain would be less than the 2001 reference year if the increase in the value of the asset is greater than the increase in the ITC between the year of acquisition and 2001. Owners who had purchased real estate prior to the base year 2001 would likely benefit from the shift from the base year due to the sharp increase in the value of the property. Let`s understand the same thing with the help of an illustration: Mr. A bought fixed assets for Rs.45 lakh in September 1990 and sold the same for Rs.3 crore. Let`s analyze the impact of the change in the following 3 scenarios: Calculation of capital gains for intrusive/processed properties. .