The tax implications of Long-Term Capital Gains (LTCG) from immovable property are governed under Section 112. Before 23/07/2024, the holding period for such property was 3 years, with a tax rate of 20%. However, from 23/07/2024, the holding period reduced to 2 years, and the tax rate is lowered to 12.5%. The calculation involves determining the cost of acquisition (COA) using the higher of the actual cost or Fair Market Value (FMV) as of 01/04/2001, with indexing applied. For instance, Mr. Subhajit, who bought property in 1991 for Rs. 8,50,000, made improvements over the years and sold it for Rs. 1.25 crore in 2024. The LTCG is calculated as Rs. 53,50,914, after deducting expenses and adjusting for improvements. If the property transfer occurs after 23/07/2024, Section 112 allows the tax on LTCG to be calculated based on the lower of 12.5% without indexation or 20% with indexation. For example, if the transfer happens on 23/07/2024, and the capital gain is Rs. 99,00,000, the tax liability is Rs. 10,70,183 with indexation, and an additional surcharge is applicable as the total income exceeds Rs. 1 crore. The final net tax payable in this case is Rs. 14,14,488. The new amendment to Section 112, effective from 23/07/2024, ensures that tax rates are reduced, making it crucial to understand the nuances for tax calculations.
Tax Implication on LTCG (Immovable Property) & Section 112:-
| Description | Up to 22/07/2024 | From 23/07/2024 |
| Holding Period for Immovable Property | 3 Yrs. | 2 Yrs. |
| Tax Rate Sec. 112 | 20% | 12.5% |
Example-1
Mr. Subhajit Purchase an Immovable Property on 25/08/1991 & cost of acquisition Rs. 8,50,000.
FMV on 01/04/2001- Rs.16,00,000
Improvement-1 FY12-13 Rs. 4,00,000
Improvement-2 FY23-24 Rs.3,50,000
Transfer Date-22/07/2024 & Amt.-1,25,00,000
Expenses Incurred in Connection of transfer Rs.250,000
Calculation Capital Gain.
| Calculation of Capital Gain Mr. Subhajit (Tnf. Date-22/07/2024) | ||
| A.Y.-25-26
P.Y.-24-25 |
||
| Amt. | ||
| FVOC | 1,25,00,000.00 | |
| Less: Transfer Expenses | 2,50,000.00 | |
| 1,22,50,000.00 | ||
| Less: COA(Higher) | ||
| i) Actual Cost or | 8,50,000.00 | |
| ii) FMV on 01/04/2001 | 16,00,000.00 | |
| So, ICOA= 16,00,000*363/100 | 58,08,000.00 | |
| ICOI-1 FY 2012-13 Rs. 400000 | 7,26,000.00 | |
| ICOI-2 FY 2023-24 Rs. 350000 | 3,65,086.21 | 10,91,086.21 |
| LTCG (Note-1) | 53,50,914.00 | |
Example-2 Above Ex.1 if the transfer date is 23/07/2024 & his other Income Rs. 10,00,000. Calculation Total Income & Tax Liability of Mr. Subhajit For AY-2025-2026.
| Calculation of Capital Gain Mr. Subhajit(Tnf. Date-23/07/2024) | ||
| A.Y.-25-26
P.Y.-24-25 |
||
| Amt. | ||
| FVOC | 1,25,00,000.00 | |
| Less: Transfer Expenses | 2,50,000.00 | |
| 1,22,50,000.00 | ||
| Less: COA(Higher) | ||
| i) Actual Cost or | 8,50,000.00 | |
| ii) FMV on 01/04/2001 | 16,00,000.00 | |
| So, COA | 16,00,000.00 | |
| COI-1 FY 2012-13 Rs. 400000 | 4,00,000.00 | |
| COI-2 FY 2023-24 Rs. 350000 | 3,50,000.00 | 7,50,000.00 |
| LTCG | 99,00,000.00 | |
| Other Income | 10,00,000.00 | |
| Total Income | 1,09,00,000.00 | |
Now, Section 112(Amendment):
In the case Resident individual & HUF if any immovable property transfer on or after 23/07/2024 AND such property was acquired before 23/07/2024 than Tax on such LTCG Shall Be Lower of:
i) 12.5% (Without Indexation)
OR
ii) 20% (With Indexation)
Above Option, is applicable for Only for Tax Calculation & Not for the Calculation Capital Gain & Total Income.
Calculation Tax Liability:
| 1)Tax On Capital Gain(LTCG)-Lower | Amt. | |
| i) 12.5% (Without Indexation) i.e. 99,00,000*12.5% | 12,37,500.00 | |
| OR | ||
| ii) 20%(With Indexation) | 10,70,183.00 | |
| Note-1 (i.e. 53,50,914*20%) | ||
| Actual Tax Liability LTCG | 10,70,183.00 | |
| 2) Tax On Other Income (Assume Old Tax Rigime) | 1,12,500.00 | |
| 10,00,000→112500 | ||
| Total Tax(1+2) | 11,82,683.00 | |
| Add: Surcharge@15%, because Total Income Above 1 Cr. (i.e. 1,09,00,000) | 1,77,402.00 | |
| 13,60,085.00 | ||
| Add: H&E @4% | 54,403.00 | |
| Net Tax Payable | 14,14,488.00 | |
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