Mr. Babu purchases a piece of agricultural land in urban area in 2006-07 for Rs. 1,00,000. He was using it for agricultural purpose and in March 2021 he sold the same for Rs. 12,00,000. He purchases another piece of agricultural land immediately for Rs. 5,00,000 and deposited Rs. 3,50,000 in Capital Gains Accounts Scheme, 1988. Find out Capital Gains Taxable if any, for the year 2020-21. Cost Inflation Index : 2006-07 - 122, 2020-21 - 301.
Question
Mr. Babu purchases a piece of agricultural land in urban area in 2006-07 for Rs. 1,00,000. He was using it for agricultural purpose and in March 2021 he sold the same for Rs. 12,00,000. He purchases another piece of agricultural land immediately for Rs. 5,00,000 and deposited Rs. 3,50,000 in Capital Gains Accounts Scheme, 1988. Find out Capital Gains Taxable if any, for the year 2020-21. Cost Inflation Index : 2006-07 - 122, 2020-21 - 301.
Solution
To calculate the Capital Gains Tax, we first need to calculate the Indexed Cost of Acquisition.
The formula for the Indexed Cost of Acquisition is:
Indexed Cost of Acquisition = (Cost of Acquisition * Cost Inflation Index of the year of sale) / Cost Inflation Index of the year of purchase
Substituting the given values:
Indexed Cost of Acquisition = (1,00,000 * 301) / 122 = Rs. 2,46,721 approximately
Next, we calculate the Long Term Capital Gain (LTCG) which is the difference between the Sale Price and the Indexed Cost of Acquisition.
LTCG = Sale Price - Indexed Cost of Acquisition
Substituting the given values:
LTCG = 12,00,000 - 2,46,721 = Rs. 9,53,279
However, Mr. Babu has reinvested part of the sale proceeds in another piece of agricultural land and also deposited some amount in the Capital Gains Accounts Scheme, 1988.
The amount reinvested in agricultural land = Rs. 5,00,000 The amount deposited in Capital Gains Accounts Scheme, 1988 = Rs. 3,50,000
Total reinvestment = 5,00,000 + 3,50,000 = Rs. 8,50,000
The taxable LTCG is the difference between the LTCG and the reinvestment.
Taxable LTCG = LTCG - Reinvestment
Substituting the given values:
Taxable LTCG = 9,53,279 - 8,50,000 = Rs. 1,03,279
Therefore, the Capital Gains Taxable for the year 2020-21 is Rs. 1,03,279.
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