Selling a redeveloped flat? Here's how capital gains will be calculated

How is capital gain tax computed on redeveloped property

I, along with five other individuals, bought a plot of land in Pune and constructed six flats one for each of us in 1976. We subsequently formed and registered a housing society. The average cost incurred for each flat was around Rs 76,000 but we no longer have documents to substantiate this. In 2018, we opted for redevelopment and received larger flats in November 2021. I now wish to sell my flat and have received an offer of Rs 1.59 crore. Please guide me on the capital gains tax liability. I do not wish to reinvest the proceeds, as I need the funds.

Expert's Advice: I am sure you would have filed your Income Tax Return (ITR) to claim exemption under Section 54 for the redevelopment since you received a new flat in exchange for your old one.

As you have held the redeveloped flat for more than two years, it is treated as a long-term capital asset and the profit on its sale will be taxed as long-term capital gains (LTCGs). For calculating the cost of the redeveloped flat, the original cost incurred in 1976 is not relevant. What matters is the market value of the redeveloped flat on the date you took possession.

LTCG tax is payable at 12.5 percent on the difference between the sale price and this cost. However, if you are a resident individual or resident HUF, and the property was acquired before July 23, 2024, you can choose between two tax options: 12.5 percent on unindexed LTCG or 20 percent on indexed LTCG.

You should compare both calculations and opt for the lower tax liability. Since I do not have the market value of the redeveloped flat as on the possession date, I am unable to compute your exact tax.

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