Tax Saving Tips

Tax Saving Tips

  • It is worth investing in Long-Term Capital Assets because:

1.The tax rate for Long-term Capital Gain is 20% as against maximum rate of 30% for other sources of income.

2.One can claim Cost inflation index benefit from the asset’s sale value.

3.The long term capital assets get some value appreciation. This will get adjusted with the interest that could have been earned, had the investment been made in any other source.

Types of Losses
  • Short Term Capital Loss.
  • Long Term Capital Loss.
Setting off against
  • Short Term/Long Team Capital Gain.
  • Long Term Capital Gain.
Carrying forward to subsequent 8 years
  • Allowed for short term loss.
  • Allowed for long term loss.
  • Mr. Anand purchased a house in July 1996 for Rs.35 lakhs. In Dec. 2002 he spent Rs. 8 lakhs on home improvement. The property was sold in March 2009 for Rs.90 lakhs. He incurred Rs.3 lakhs as expenditure on transaction fees.
  • Capital Gain tax on the sale of the house is as follows.
  • Long-term capital gains is computed by deducting from full value of the consideration, the expenditure incurred in connection with transfer, the indexed cost of acquisition, and the indexed cost of improvement.

Indexed cost of Purchase

CII for the year of sale/CII for the year of purchase X Improvement cost.

582(CII 2008-09)/447(CII 2002-03) X 8,00,000 = 10,41,611

Capital Gains

Sale Price 90,00,000
Less: Indexed cost of purchase (-)66,78,689
Less: Indexed cost of Improvement (-) 10,41,611
Less: Expenditure on transaction Fees (-) 3,00,000
Net Capital Gain 9,79,700
Tax on Capital Gains @ 20% 1,95,940

Note: CII= Cost Inflation Index

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