VALUATION OF LAND AND
BUILDING FOR CAPITAL GAIN TAX
Capital Gains Tax
If any property is sold and the profits or gains
received by the seller it is chargeable to Income tax under the head Capital
Gain Tax
Capital Gain Tax Rates – Long Term Capital Gain
Individuals or Undivided family 20%
Companies 40%
Firms Association of Persons 30%
Calculation of Capital Gains
The Capital gain is computed by deduction of the
following amounts from the Value
of Consideration received by the seller.
1. The cost of acquisition of the property.
2. Cost of Improvements carried out if any.
3. Any expenditure incurred in connection with the
acquisition of the property.
Indexed cost of acquisition
In the case of Long term Capital Gain the indexed cost
of Acquisition the Indexed Cost of the inputs is considered.
Indexed cost of acquisition means the total cost of
acquisition including other expenses multiplied by the Cost Inflation Index at
the time of selling divided by the Cost Inflation Index at the time of
acquisition. Similarly the Indexed Cost of Improvements means the cost of
improvements at the time the improvements are carried out multiplied by the
Cost Inflation Index at the time of selling divided by the Cost Inflation Index
at the time of improvements.
Cost Inflation Index for any year means Index as the
Central Government may, having regard to 75% of average rise in the consumer
price index in that year, by notification in the Official gazette, specified in
this behalf. The Cost Inflation Index for the Financial Years 1981 to 2011 is attached
as Table 1.
Cost of acquisition
The following expenditure is added to the real cost of
acquisition
1. Expenditure for completing the Sale Deed
2. Expenditure incurred for the purpose of acquisition like
brokerage etc
Capital gain for properties acquired after 01-04-1981
If the property is acquired after 01-04-1981 then the
cost of Acquisition will have to
be indexed as on date of acquisition. Also any
improvements done between the date
of acquisition and date of sale will also have to be
indexed on the date on which the
improvements are done. After that the cost of
acquisition and the improvements will
have to be indexed on the date of sale. The following
worked example will elaborate
the process of indexing more clearly.
Worked Out illustration
A has purchased a property of 8 cents with a RCC single storied
building of Plinth
Area 100 sq m for an amount of Rs 14,00,000/ in the year 1990.
He has done some
improvements in the year 1996 for an amount of Rs 5,00,000/. He
sold the property
in the year 2002 for an amount of Rs 50,00,000/Work out the
Capital Gain Tax to
be paid by A.
Year of Acquisition of the property 1990
Cost of Acquisition Rs 14,00,000/-
Year of sale of the property 2002
Sale consideration Rs 50,00,000/-
Cost Inflation Index at the time of acquisition 182
Cost Inflation Index at the time of sale 447
The Cost of Acquisition Rs 14,00,000/-
Indexed cost of acquisition 447/182 x Rs 14,00,000 = Rs
34,38,462/-
Indexed cost of Improvements
Cost Inflation Index at the time of Improvements Year 1996 - 281
Cost Index at the time of sale Year 2002 - 447
Cost of Improvements Rs 5,00,000/-
Indexed Cost of Improvement 447/281 x Rs. 5,00,000 = Rs
7,95,374/-
Total Indexed Cost of Acquisition = Indexed Cost of the Property
+ Indexed Cost of Improvements
= Rs 34,38,462/ + Rs 7,95,374/ = Rs 42,33,836/-
Actual Sale Price of the property = Rs 50,00,000/-
Capital Gain = Rs 50,00,000/- Rs 42,33,836/ = Rs 7,66,164/-
Since the property is sold after three years from the date of
acquisition it attracts Long
Term Capital Gain Tax at 20%
Capital Gain Tax = Rs 7,66,164 x 0.20 = Rs 1,53,233/-
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