2001 will be base year for computing capital gains in new regime: I-T Dept

Vijay C Roy

New Delhi, July 26

Coming to the aid of taxpayers, who are trying to understand how their capital gains will be calculated for the property acquired before April 1, 2001 under the new tax regime, the Income Tax Department has clarified that 2001 would be the base year for the purpose.

Under the new regime, the department has stated that the reduction in long term capital gains tax rate from 20% with indexation to 12.5 % without indexation for real estate in the budget 2024-25 will benefit in almost all cases. Earlier taxpayers have raised the issue that what would be the cost of acquisition as on April 1, 2001 for the properties purchased prior to 2001.

According to I-T Department, for properties, including land and buildings purchased before April 1, 2001, the cost of acquisition as of that date can be determined in one of two ways.

Firstly, by considering original cost of acquisition i.e taxpayers can choose to use the original cost of acquisition of the asset. Alternatively, through Fair Market Value (FMV) as of April 1, 2001 which means taxpayers can opt to use the FMV of the property as of April 1, 2001. However, this value must not exceed the stamp duty value, wherever applicable. Fair Market Value or FMV refers to the price set for selling or purchasing an asset in the open market.

“Taxpayers can choose either option as per section 55(2)(b) of the Income-tax Act, 1961,” The I-T Department wrote on ‘X’. The act gives the taxpayers the flexibility to select the more advantageous option for calculating their capital gains.

For example, the cost of acquisition of property in 1990 was Rs 5 lakh and stamp duty value and the fair market value was Rs 10 lakh and Rs 12 lakh, respectively as on April 1, 2001. Since the value must not exceed the stamp duty value, so for computing purpose, the value of the property will be considered as Rs 10 lakh.

Suppose, the property was sold on July 23, 2024 for Rs one crore, then the Long Term Capital Gain (LTCG) under the old regime will be Rs 63.7 lakh, considering indexed cost of Rs 36.3 lakh for 2024-25. Finally, the taxable amount will be Rs 12.74 lakh (taxed at rate of 20%).

Whereas, under the new rule as announced in the Budget, the LTCG will be Rs 90 lakh without indexation and the taxable amount will be Rs 11.25 lakh (taxed at rate of 12.5 per cent). Thus, an individual have to pay lesser amount under the new rule, according to the department.

Tax experts said the introduction of this new capital gains taxation regime, which completely discard the benefit of indexation for properties, has led to significant changes in how capital gains are computed. By allowing taxpayers to use the FMV as of April 1, 2001, the department aims to offer relief and ensure a fair assessment of long-term capital gains for properties held for an extended period, they said.