Wednesday, 7 May 2014

How to Compute LTCG.

Long Term Capital Gain (LTCG) is to be calculated by deducting the following from the full value consideration:
  1. Indexed cost of Acquisition [Cost Inflation Index (CII) for the FY 2002-03 is “447” whereas same for the FY 2014-15 has not yet been notified]
  2. Indexed cost of Improvement [Cost Inflation Index (CII) for the FY 2007-08 is “551”]
Further deduction is also available towards the expenses incurred WHOLLY & EXCLUSIVELY in connection with the transfer like brokerage, legal charges etc.

The expenses towards stamp duty & registration charges would form the part of cost of acquisition whereas construction expenses incurred by availing housing loan would be treated as cost of improvement. The deduction towards further improvement coloring & furnishing in 2007-08 would be admissible on the basis of documentary evidences only. Without documentary evidences, the deduction could be denied.

Taxability of Long Term Capital Gain (LTCG) :
LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961.

Exemption against Long Term Capital Gain :
To Save LCTG tax by opting for an exemption u/s 54 or U/s 54EC, as under: -
  • Exemption Under Section 54F:
Exemption u/s 54 is available if the taxpayer invests the amount of LTCG for purchase/construction of a house property. The time period within which investment should be done is as under:
  • For Purchase: Within One year before or two years after the date of transfer; or
  • For construction: Within a period of three years from the date of transfer.

[It may be noted that u/s 54, taxpayer is allowed 2 years for purchase and 3 years for construction of the house property. However, the capital gain tax on such transfer is taxable in the assessment year in which transfer took place and the return of income of that previous year has to be filed before the specified date i.e., due date. Hence, the tax payer has to take a decision for purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable. To enable the taxpayer to claim an exemption, Income Tax Act has specified an alternative in the form of Deposit under the Capital Gain Deposit Accounts Scheme-1988 (CGDAS) for earmarking the amount for purchase/construction within specified time limit. The amount of LTCG which is not utilized by the taxpayer for purchase or constructions of the new house till due date has to be deposited under the CGDAS before the DUE DATE of furnishing the return of income. After deposits, the amount already utilized by the taxpayer for purchase/ constructions of the new house till due date, along with unutilized LTCG so deposited, shall be eligible for exemption u/s 54 in the year in which LTCG has arisen. Later on, whenever taxpayer purchase/ constructs the house property within a specified time slot, he can make payment from the CGDAS.]

  • Exemption Under Section 54EC:

To claim an exemption u/s 54EC, taxpayer have to invests the amount of Long Term Capital Gain in Specified bonds issued by the Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer of assets.

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