Can Stamp Duty Value be Used to Compute LTCL?

Many times, owners of real estate sell their property at a loss. It happens for various reasons. The loss is computed by deducting the purchase value of the property from its sale value. However, the Income Tax Act of 1961 has a slightly different approach. It considers the inflation and expenses associated with selling the property to calculate the gains. But then, is it possible to consider Stamp Duty Value as the sale value for computing Long Term Capital Loss (LTCL), defying the original sale proceeds? Let’s find out!

When is Stamp Duty Value used to compute LTCL?

When the net sale consideration (sale value – the expense of transferring the property) is more than 10% less than the Stamp Duty Value, the stamp duty value is taken as the sale value to calculate Long Term Capital Gain/Loss. A simple illustration will bring you clarity.

Suppose you purchased a house in 2012-13 for Rs. 10 lakhs and sold it for Rs. 6 lakhs in 2021-22. The stamp duty value of the property is Rs. 7.5 lakhs.

Any person will compute the loss as Rs. 4 lakhs (Rs. 10 lakhs – Rs. 6 lakhs). However, as per the Income Tax Act, the loss shall be calculated as follows:

Sale consideration: Even though the sale consideration is Rs. 6 lakhs, it will be taken as Rs. 7.50 lakhs. It is because the actual sale consideration (Rs. 6 lakhs) is less than the stamp duty value (Rs. 7.50 lakhs) by more than 10% of the consideration (Rs. 6 lakhs*10% = Rs. 60,000).

Indexed Cost of Acquisition: The indexed cost of acquisition is the purchase value of a property after the inflation is adjusted. Under the Income Tax Act, inflation is determined using the Cost Inflation Index (CII). For FY 2012-13, CII was 200, and for FY 2021-22, CII will be 317. Therefore, the indexed cost of acquisition shall be Rs. 10 lakhs*317/200 = Rs. 15,85,000.

Long Term Capital Loss: The Long Term Capital Loss shall be the Net Sale Consideration – Indexed Cost of Acquisition, i.e., Rs. 7,50,000 – Rs. 15,85,000 = Rs. 8,35,000 shall be the LTCL.

How to Set off LTCL?

The Income Tax Act of 1961 has placed certain restrictions on the set-off of LTCL. Usually, the loss is set off against the income to provide tax benefits. However, for LTCL, it can be set off only against Long Term Capital Gain (LTCG). If there is no LTCG, then you can carry forward the loss for eight financial years, following the financial year in which the loss accrued, after which it will lapse.

In A Nutshell

The Income Tax Act of 1961 has its way of dealing with the gains and losses from real-estate transactions. However, the Act also provides benefits such as deductions for home loans taken by the borrowers. While the principal repayment is deductible under Section 80C of the Act, the interest payment is allowed as a deduction under Section 24(b).

Therefore, if you are contemplating a home loan for purchasing your residential property, proceed with checking the home loan eligibility criteria. If you satisfy the criteria, you can apply for a home loan with the lender offering the best home loan interest rate and services. Also, use a home loan EMI calculator to determine the amount of EMI you need to pay.