sale of property would attract long term capital gains 

2)  the cost of calculating your gain would the cost of purchasing property in 1940  by mother  and cost shall be indexed as it is long term capital gain

3) your mother can invest in specified bonds under Section 54EC within six months from the date of transfer of the property sold. 

the capital gains tax is 20% on the capital gains accrued (with indexation benefit)

and capital gains tax is 10% on capital gains accrued (without indexation benefit)

your mother can invest the sale proceeds for purchase of a residential house u/s 54 of IT Act and the entire capital gains tax will be exempt if full capital gains are invested

she can also purchase government bonds u/s 54EC. However the limit for investment in the same is only 50 lacs in a financial year. On the balance capital gains tax will have to be paid at above rates

She has to pay capital gain tax on sale after deduction and indexation from date she received the property by inheritence.

See can invest a maximum of 50 lakh in government bonds whereby she will get benifit in capital gain tax for that amount.

The calculation shall be done by the CA.

if you wish to invest in the government bonds then you can check the websites of National Highways Authority of India [NHAI] and Rural Electrification Corporation [REC]

above table i got from the website called cleartax

it gives the cost inflation index values for different years beginning from 2001

what is indexation?

you must have purchased the property at a certain cost price

as time passes by, the value of money goes down. This is known as inflation

so the cost price of your property would also devalue

to account for the same, the cost price is indexed i.e. it is increased on a proportionate basis to adjust for inflation

when you calculate the capital gains tax on sale of your property, you are allowed to deduct the indexed cost of acquisition from it. There are other deductions as well. After making all these deductions, you arrive at your capital gains on which you have to pay capital gains tax

had you simply deducted the cost price (without indexing it), the capital gains value would be more and you would have to pay more tax

so the government allows to index the cost of acquisition such that the cost price is increased to account for inflation

as due to indexation, the capital gains value reduces, the tax rate is 20%

whereas if no indexation is done, the capital gains value comes high, and that is why tax rate is kept at 10%

for calculating indexed cost of acquisition, you have to take CII for the year 2001 which is 100 as given in table above

then you take the CII of the year of sale 

now: Original cost price corresponds to CII of base year 2001

so today's cost price adjusted for inflation (assume it is X) would correspond to CII of year of sale, say 280

you do simply cross multiplication as under:

Therefore X (indexed cost of acquisition) = original cost price x CII of year of sale (280) / CII of base year (100)

the formula is given as under. Accordingly you get indexed cost of acquisition

Kindly consult a CA for exact figures to determine your tax liability

Cost Inflation Index is calculated to match the prices to the inflation rate. In simple words, an increase in the inflation rate over a period of time will lead to an increase in the prices.

Central Government specifies the cost inflation index by notifying in the official gazette.

Cost Inflation Index = 75% of the average rise in the Consumer Price Index* (urban) for the immediately preceding year

*Consumer Price Index compares the current price of a basket of goods and services (which represent the economy) with the price of the same basket of goods and services in the previous year to calculate the increase in prices.

Cost Inflation Index is calculated to match the prices to the inflation rate. In simple words, an increase in the inflation rate over a period of time will lead to an increase in the prices.

Central Government specifies the cost inflation index by notifying in the official gazette.

Cost Inflation Index = 75% of the average rise in the Consumer Price Index* (urban) for the immediately preceding year

*Consumer Price Index compares the current price of a basket of goods and services (which represent the economy) with the price of the same basket of goods and services in the previous year to calculate the increase in prices.

Cost Inflation Index is calculated to match the prices to the inflation rate. In simple words, an increase in the inflation rate over a period of time will lead to an increase in the prices.

Central Government specifies the cost inflation index by notifying in the official gazette.

Cost Inflation Index = 75% of the average rise in the Consumer Price Index* (urban) for the immediately preceding year

*Consumer Price Index compares the current price of a basket of goods and services (which represent the economy) with the price of the same basket of goods and services in the previous year to calculate the increase in prices.

take Full value of consideration ie Rs 70 lakhs 

2. Subtract the following from above:

• Purchase cost
• Any cost related to purchase of property like stamp duty, registration cost, brokerage, traveling cost related to purchase, etc
• Cost of major repairs, improvement or renovation during the holding life of the property
• In case of inherited property you can consider cost related to inheritance paper work.

3. The resultant amount is Capital Gains.

4) since property has been purchased before 2001 you will need to get its fair valuation done by income tax approved valuers as of April 2001. This is because new revised CII for indexation started getting published taking FY 2001-02 as base with value of 100.

Kindly provide whole mutation records of land from day one whether its purchased land or gifted property and sold recently so we can tell to you how much it's taxable or not the selling amount and where to invest it.

If the property was purchased before 01.04.2000, then to calculate the cost of acquisition, you will have to calculate fair market value (FMV) of the property as on 01.04.2000. You can obtain a Valuer’s Report in respect of the same.

Thereafter, when the property is sold, the cost of acquisition as calculated above is indexed till the year of sale on the basis of Cost Inflation Index (CII). The difference between the Indexed cost of acquisition and the Sale consideration is your Long term Capital Gains.

There are many avenues available for saving tax on this long term Capital Gains.

It is advisable to get in touch with a Chartered Accountant for calculation of Capital Gains and figure out the best possible tax saving avenue for the same.

HELLO

             indexation is a technique to adjust tax payments by employing a price index which adjusts for inflation. Or, in other words, indexation is the process that takes into account inflation from the time you bought the asset to the time you sell it. The way it works is that it allows you to inflate the purchase price of the asset to take into account the impact of inflation. The end result is that you get the benefit of lowering your tax liability. Inflation erodes the value of the asset over time.  This impact of inflation on the value of an asset cannot be ignored. Hence it must be taken into account when computing tax on the difference between the buy and sell cost. It is for this reason that the government uses the Cost Inflation Index or CII. This is an inflation index tool used to measure the rate of inflation in the economy. The value of the index is determined by the central government and is increased every year to reflect inflation. With FY1981-82 as the base (CII=100)
E.g.

Asset bought in 1996-97 (CII = 305) for Rs 2 lakh. Asset sold in 2004-05 (CII = 480) for Rs 4 lakh. To arrive at the indexed cost of acquisition one has to follow two steps. Take the CII for the year in which the asset is sold and divide it by the CII for the year in which it was bought. This would be 1.5737. This is now multiplied by the cost of acquisition (2,00,000 x 1.573) to arrive at the indexed cost of acquisition (Rs 3,14,740). Capital gains would now equal to the indexed price being subtracted from the selling price of the asset: Rs 4,00,000-Rs 3,14,740 = Rs 85,260.

REGARDS

It gets added to the seller's other incomes and is taxed at the applicable slab rate. If the property was held for more than 3 years, then the gains are considered long-term capital gains (LTCG) and taxed at 20% with indexation. 

Once you have calculated the indexed cost of property acquisition and know the selling price, you can calculate LTCG by deducting indexed cost of property acquisition from the selling price. Say, you plan to sell a house that was bought in May 2011 for Rs50 lakh, and which is worth Rs80 lakh now. According to this formula, the inflation adjusted cost of acquisition would be Rs50 lakh * 1125 (CII number for 2016-17)/785 (CII number for 2011-12). This comes to Rs71,65,605. So your LTCG would be Rs80 lakh minus Rs71.66 lakh, or about Rs8.34 lakh.

The cost of Acquisition means the buying price of the house property as mentioned in the sale agreement.

The cost of Improvement means any cost incurred for major repairs or alterations to the house property.

However in order to give the benefit of inflation to the purchase price, the IT department allows indexation on the purchase price. Indexation is yet another method to arrive at the real price of the property as on the year of sale. Index figures are published by the government for every financial year. The taxpayer has an option to claim indexation or to forgo the same.

To reduce the tax outgo from LTCG made from any other asset such as jewellery, debt mutual funds etc, an investor has the option to pay tax at a rate of 20 percent with indexation benefit before March 31, 2018 or invest it in 54EC bonds.

You need to invest in these bonds within 6 months from when the capital asset was transferred. The maximum amount of capital gains that you can invest in these bonds is Rs50 lakh. However, in case of jointly held assets like real estate, each owner has a separate limit of up to Rs50 lakh for investing in these bonds. Currently, the bonds enjoying this benefit include only those from the National Highways Authority of India and the Rural Electrification Corporation Ltd. Both offer a rate 5.25% a year. 

The other option for saving tax on capital gains is to reinvest the capital gain in a residential property. Unlike tax-saving bonds, there is no limit on how much you can invest in a house. However, you can buy only one property with the capital gain. The new house can be bought 1 year before transferring the older property or 2 years after the transfer.

Indexation is a technique to adjust tax payments by employing a price index which adjusts for inflation. Or, in other words, indexation is the process that takes into account inflation from the time you bought the asset to the time you sell it.

Cost inflation Index is a term that comes into play when we talk about long-term capital gains. This index is fixed and is declared every year by the government. For calculating capital gains on long-term assets, indexation is used.

To calculate the long-term capital gains tax payable, the following formula is to be used:

Long-term capital gain = full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer), where:

Indexed cost of acquisition = cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition.

Indexed cost of improvement = cost of improvement x cost inflation index of the year of transfer/cost inflation index of the year of improvement.

Worried about losing your debt fund returns to the taxman?

Stop worrying, start indexation!

Indexation is a prudent way to prevent draining of your debt fund returns by way of taxes. It helps you to inflate the purchase price of the debt mutual funds. In this way you can lower your tax liability.

Before embarking on indexation, it’s important for you to understand two concepts i.e. inflation and capital gains.

Inflation is the gradual increase in the price of a product or service. What is worth ₹100 today will be worth ₹200 or more next year; and even more than that the year after. In this way, inflation adversely affects your purchasing power.

It means for the same amount of money, you will be able to buy fewer things year after year as compared to what you can buy today. The cost of a product or service will go from ₹100 to ₹110 because of inflation, but its value will remain the same.

Now, let’s have a look at capital gains.

Capital Gains refer to an increase in the value of an investment over a specific time frame. If the NAV of your debt fund was Rs 10 last year and today it stands at Rs 15, your investment has experienced a capital gain.

In other words, capital gains is the difference in the purchase price and current market price of an investment. In case of debt funds, you make long term capital gains when your holding period is more than 36 months.

Unlike equity funds, long term capital gains on debt funds are taxable at the rate of 10% without the benefit of indexation. You need to know that the concept of indexation is not applicable in case of equity funds.

Indexation is used to adjust the purchase price of a debt fund so as to reflect the effect of inflation on it. A higher purchase price means lesser profit, which effectively means lesser tax.

By applying indexation, you can actually reduce your long-term capital gains to lower your taxable income. It’s due to this reason that debt funds are regarded as superior fixed-income investments than fixed deposits (FDs).

Thus, in this way indexation makes the game of investment a win-win affair.

The rate of inflation used for indexation can be taken from the government’s Cost Inflation Index (CII). The values in the index are determined by the Central Government and updated on the Income Tax Department’s website. You can view the Cost Inflation Index from 1981onwards.