New Capital Gains Tax Rules for Properties bought before 2001; IT Department clarifies
The Income Tax Department has addressed a major issue regarding the new capital gains taxation regime, specifically the cost of acquisition for properties purchased before April 1, 2001. The clarification is critical for taxpayers who want to know how their capital gains will be calculated under the amended rules.
For properties, including land and buildings, purchased prior to April 1, 2001, the cost of acquisition as of that date can be determined in two ways:
Original Acquisition Cost: Taxpayers can use the asset’s original acquisition cost.
Fair Market Value (FMV) as of April 1, 2001: On the other hand, taxpayers might choose to use the property’s Fair Market Value (FMV) as of April 1, 2001. However, this amount must not exceed the stamp duty value, if applicable.
This option is granted by Section 55(2)(b) of the Income-tax Act of 1961, allowing taxpayers to choose the more favourable method for calculating their capital gains.
Let’s Understand this with an Example:
| Particulars | Amount (Rs.) |
| Cost of acquisition of property in 1990 | 5 lakhs |
| Stamp duty value as on 1.4.2001 | 10 lakhs |
| FMV of the property as on 1.4.2001 | 12 lakhs |
| Sale consideration {Property sold on or after 23.7.2024) |
1 crore |
| Cost of acquisition as on 1.4.2001 (lower of stamp duty value or FMV) | 10 lakhs |
| Indexed cost of acquisition in FY 2024-25 = 10×363/100 = 36.3 lakhs | 36.3 lakhs |
| LTCG (old) | Tax (old) @20% | LTCG (New) | Tax (New) @12.5% |
| 63.7 lakhs | 12.74 lakhs | 90 lakhs | 11.25 lakhs |
The taxpayer will have the option of using rollover benefits to save money on taxes.
New Capital Gains Tax – Without Indexation Benefits
The implementation of this new capital gains tax regime, which eliminates the benefit of indexation for properties purchased after April 1, 2001, has resulted in major changes in how capital gains are calculated.
By enabling taxpayers to utilize the FMV as of April 1, 2001, the Tax Department hopes to provide some assistance while also ensuring a fair assessment of long-term capital gains for properties owned for an extended length of time.
Taxpayers must carefully weigh both choices to decide the most advantageous way, especially considering the elimination of indexation benefits. This decision can have a significant impact on the taxable amount, and thus the tax burden for property transactions.