Shrikant furnishes the following information for the previous year 2020-21 Year of purchase 2003-04 Year of sale 2020-21 Cost of purchase 218000 Sale proceed 1210000 Commission paid on sales 10000 Shrikant purchased a new residential house for 600000 on 15?

Question

Answer

Calculation of Capital Gains

Year of purchase: 2003-04

Year of sale: 2020-21

Cost of purchase: 218000

Sale proceed: 1210000

Commission paid on sales: 10000

Calculation of Long-term Capital Gains

The property was held for more than 24 months, so it is a long-term capital asset.

Cost of acquisition (2003-04) = 218000

Cost of improvement, if any, can be added to the cost of acquisition.

Indexed cost of acquisition = 218000 x (301/259) = 253533

The sale price is 1210000, and commission paid on sale is 10000.

Indexed cost of acquisition = 253533, so Long-term capital gains = 1210000 - (253533 + 10000) = 956467

Calculation of Tax on Long-term Capital Gains

The tax on long-term capital gains is calculated at the rate of 20%.

The tax can be saved by investing in a new residential property as per Section 54 of the Income Tax Act.

Shrikant has invested 600000 in a new residential house on 15th January 2021.

As per Section 54 of the Income Tax Act, Shrikant can save tax on the long-term capital gains of 956467 by investing in a new residential property within 1 year before or 2 years after the date of sale.

Since Shrikant has invested in a new residential house on 15th January 2021, he can claim a deduction of 600000 from the long-term capital gains of 956467.

The taxable long-term capital gains will be 956467 - 600000 = 356467.

The tax on long-term capital gains of 356467 will be 20% of 356467 = 71293.4.

Conclusion

Shrikant sold a property in the financial year 2020-21 and earned long-term capital gains of 956467.

He invested 600000 in a new residential house on 15th January 2021 and claimed a deduction under Section 54 of the Income Tax Act.

The taxable long-term capital gains were 356467, and the tax on long-term capital gains was 20% of 356467 = 71293.4.

Shrikant needs to pay tax on the long-term capital gains of 356467.

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