I am 42 years and reside in Hubli. I had bought an apartment in Bengaluru for INR 25 Lakhs in May 2010. I recently sold this apartment for INR 55 Lakhs in September 2016. My friend has told me that I should pay tax on the profits I have made. Is this true? Is there any way I can avoid paying this tax?
You have sold the property after 3 years of purchase and hence your profit is called long term capital gain. You have to pay tax on long term capital gains at 20% + cess, after adjusting the profits to indexation benefit. With indexation benefits your acquisition price would be adjusted for the inflation and you pay less capital gains tax. Long Term Capital Gains = Sale Price – Indexed Cost of Acquisition – Indexed Cost of Improvement – Transfer Costs You calculate long term capital gains by using indexed cost of acquisition which is: = Purchase price of property * (CII of year of sale/CII of year of purchase). Cost inflation index (CII) a chart which gives yearly increase in inflation, is used to calculate your long term capital gains. Your Indexed cost of acquisition works out to be at INR 39,55,696. Assuming there is no improvement and transfer costs, long term capital gains works out to be INR 15,44,304 and tax on that will be INR 3,08,860. Yes, it’s possible to escape this long term capital gains tax. Invest your total capital gains from sale of property in a new residential property, one year before sale of old house or till 2 years after sale of old house or within 3 years of sale for under construction property. You can invest your capital gains in specified bonds like NHAI and REC bonds within 6 months from sale date up to a maximum of INR 50 Lakhs in a financial year.