I-T Dept Clarifies Real Estate LTCG Calculation for Properties Bought Before 2001

New Delhi, Jul 26 (PTI) The cost of acquisition of real estate properties purchased before 2001 will be the fair market value (FMV, not exceeding the stamp duty value) as of April 1, 2001, or the actual cost of the land or building for the purpose of calculation of long-term capital gains (LTCG) tax, the I-T department has said.

The FY25 Budget has reduced LTCG tax on real estate to 12.5 per cent, from 20 per cent previously. However, the benefit of indexation was done away with for properties purchased after April 2001.

The indexation benefit allowed taxpayers to compute gains arising out of sale of capital assets after adjusting inflation.

For properties purchased before 2001, fair market valuation (not exceeding the stamp duty value) can be used as a base to determine the indexed price. The indexed price will then be reduced from the sale price for calculating LTCG that will be taxed at 20 per cent.

In a post on X, the I-T department said an issue has been raised as to what would be the cost of acquisition as on April 1, 2001, for properties purchased prior to 2001.

For properties (land or building or both) purchased prior to April 1, 2001, the cost of acquisition as on 1.4.2001 shall be the cost of acquisition of the asset to the assessee; or the fair market value (not exceeding the stamp duty value, wherever available) of such asset as on April 1, 2001.

"Taxpayers can choose either option...," the I-T department said in a X post on Thursday night.

The I-T department gave an example as to how capital gains tax would be calculated in case of properties purchased prior to 2001.

It cited the example of a property whose cost of acquisition in 1990 was Rs 5 lakh and as on April 1, 2001, its stamp duty value was Rs 10 lakh, and the FMV was Rs 12 lakh.

If this is sold on or after July 23, 2024, at Rs 1 crore, the cost of acquisition as on April 1, 2001, would be Rs 10 lakh (lower of stamp duty or FMV).

The indexed cost of acquisition in 2024-25 fiscal year is Rs 36.3 lakh (Rs 10 lakh*363/100). 363 is the cost inflation index for FY25 notified by the I-T department.

The LTCG in such cases is Rs 63.7 lakh (Rs 1 crore minus Rs 36.3 lakh). At a tax rate of 20 per cent, the LTCG tax for such properties would be Rs 12.74 lakh.