Tax department explains new capital gains tax for properties bought before 2001

Share

Tweet

Share

Share

Email

Comments

The clarification is crucial for taxpayers looking to understand how their capital gains will be calculated under the updated rules.

The Income Tax Department has addressed a critical issue related to the new capital gains taxation regime, particularly concerning the cost of acquisition for properties purchased before April 1, 2001.

Read More:- How to correct errors in income tax return using revised ITR, last date, new rules

The clarification is crucial for taxpayers looking to understand how their capital gains will be calculated under the updated rules.

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:

Read More: ITR Deadline: Over 5 Crore Returns Filed — Last-Minute Tips for AY25 Income Tax Filers

Original Cost of Acquisition: Taxpayers can choose to use the original cost of acquisition of the asset.

Fair Market Value (FMV) as of April 1, 2001: Alternatively, taxpayers can opt to use the Fair Market Value (FMV) of the property as of April 1, 2001. However, this value must not exceed the stamp duty value, wherever applicable.

This choice is provided under Section 55(2)(b) of the Income-tax Act, 1961, giving taxpayers the flexibility to select the more advantageous option for calculating their capital gains.

Read More: Tax Clearance Certificate To Fly Abroad: Not Mandatory For All, Govt Clarifies Who Needs It Under Black Money Act

The introduction of this new capital gains taxation regime, which eliminates the benefit of indexation for properties purchased after April 1, 2001, has led to significant changes in how capital gains are computed.

By allowing taxpayers to use the FMV as of April 1, 2001, the Tax Department aims to offer some relief and ensure a fair assessment of long-term capital gains for properties held for an extended period.

Read More: Income Tax Refunds: How many days it takes to get tax refunds after filing ITR

Taxpayers need to carefully evaluate both options to determine the most beneficial approach, especially given the removal of indexation benefits. This choice can have a substantial impact on the taxable amount and, consequently, the tax liability for property transactions.