A reader needs 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 many others) is valued at 20 L as of 1.4.2001.
- Nevertheless, circle price for 2001 isn’t recognized, it could possibly be that it’s lower than 20 L. I’ve to test with the registrar’s workplace if that they had a circle price 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 associated 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 embrace shopping for part 54EC bonds or constructing/shopping for one other home.
Why did the indexation choice end in the next tax on this instance?
We had proven earlier that absolute returns must be practically thrice increased than inflation for the 12.5% tax rule to be helpful!
Let X = % capital acquire (sale worth – buy worth)/buy worth.
Y = % change in the price inflation index
(CII within the yr bought 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 would like to seek out out if there was a circle price in 2000? => No.
- Will the government settle for the valuer report of honest market worth as of 1.4.2001? => Sure. There is no such thing as a want to point out this except requested for by the earnings tax division if there’s a question on the IT return.
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