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Sold property, how can I pay lower LTCG tax, with or without indexation?

My mother-in-law received a flat free of cost after redevelopment in 2021. She had originally purchased the property in 1983. If she decides to sell it now or in the future, what base price will be considered for calculating capital gains? Additionally, what will be considered as base year, 1983 or 2021? She does not have any information on the property’s value in 2021.

Amit Maheshwari Tax Partner, AKM GlobalThe property originally purchased in 1983 and subsequently received as a redeveloped flat in 2021 will be subject to specific rules while calculating the capital gains tax on sale. For determining the cost of acquisition, the base year for calculation will be financial year 2001-2. Since the property was acquired before 1 April 2001, the cost of acquisition will be the fair market value (FMV) of the property as on 1 April 2001, or the original purchase price in 1983, whichever is higher. This higher value will serve as the cost for computing capital gains. The redevelopment of property does not alter the original cost of acquisition or its holding period. The holding period will be considered from the date of purchase in 1983, ensuring that the property qualifies as a long-term asset, as it has been held for more than 24 months. Consequently, any gains from its sale will attract long-term capital gain (LTCG) tax. Further, due to a change in capital gain tax regime this year, taxpayers are allowed to choose from two different tax rates. They can opt for the new LTCG rate of 12.5% without indexation or a tax rate of 20% with indexation (i.e. adjusting the cost calculated above by using the cost inflation index provided each year by the tax department). Taxpayers can calculate their liability under both methods and choose the lower tax amount.

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