Yes, friends, how are you all? Good morning, good
afternoon, good evening, whoever is watching me at any
time, my heartiest greetings to all of you.
How are you all? I am your friend C. H. Ray Gupta.
We were discussing in the last lecture on Capital Gain
Head. If you remember, we were discussing on Capital Gain
Head.
And we had discussed about transfer.
What is considered as transfer? And what are the
transactions that are not considered as transfer?
Sir, you made me do a lot of discussion.
You made me read a lot of theories, sir.
Sir, why not?
Tell me, sir, how do you calculate the Capital Gain Tax?
Please tell me something.
I said, okay, I will fulfill your wish. And I will try to
give you a format on how we calculate the Capital Gain Tax.
Come to the format. Basically, this lecture will be based
on your format on how we calculate the Capital Gain Tax.
Come.
First of all, what do we have to do? First of all, we have
to see what is our sale consideration?
We will take an example. We will take an example that you
have a property. You have a house. And you sold that house
for 2 crores.
It is not enough. I will say, you bought a house a year
ago. You bought a house a year ago for 1 crore 50 lakhs.
As soon as you bought that house, as soon as you entered
that house, your stars started changing. Your house started
changing.
You became rich overnight. You got such a lottery that you
got a profit of 100 crores, my dear.
Today, you have 100 crores in your bank account. In some
time, your bank account used to be empty like mine.
Today, in that account, you have 100 crores like I will
have someday.
The house proved to be very lucky for you.
People looked at your house and said,
Sir, we are ready to give you 2 crores for your house. How
much? 2 crores.
So, you were getting a lot of money. You thought, I have
already got 100 crores. I will buy a bungalow somewhere.
What do I do with this house? I sell it. So, how much did
you sell that house for? You sold that house for 2 crores.
Generally, when you buy or sell a house, there is a broker
in between. He takes his brokerage.
He takes it in some percentage. This is called brokerage.
Brokerage expenses.
Generally, when we used to make profit and loss accounts,
did we consider sales figure as our income?
We used to minus our expenses from sales and used to put
tax on the remaining profit.
So, we have to go in the same capital gain. I will minus
the expenses of 2 crores that I have sold.
Out of that, the small expenses like brokerage expenses, I
might have given some commission here and there.
I will minus those expenses. Out of those expenses, I will
minus the price at which I have purchased.
So, profit will come out.
Tax should be imposed on profit.
Who imposes tax on sales?
Sales is not your income.
When you minus expenses from sales, when you minus the cost
of purchasing, then you will know how much profit you have.
The profit that will come out is your capital gain.
Brokerage expenses. Suppose, this person has taken 2 lakh
rupees. I have minus 2 lakh rupees.
Suppose, what was the cost of acquisition that I had
purchased?
What is the cost of acquisition that I have acquired? 1
crore 50 lakh rupees.
Because there is a house, there are small expenses in the
house.
So, what did I do in that house?
I got an extra room in that house. I got the balcony
covered.
You must have seen. There are balconies and people cover
them.
So, the balcony that I got covered, I improved that house
in a way.
If that house was of 3 rooms earlier, now as soon as the
balcony was covered, it became a room.
So, my house of 3 rooms is now of 4 rooms. In a way, its
features have improved.
The features of that house have improved.
So, what am I doing?
What name will I give to that house? The expenses of
repairs that I have done.
Cost of Improvement. Suppose, what was the cost of that
expense? 10 lakh rupees.
So, I will also minus that. Cost of Improvement.
Cost of Improvement. How much? 10 lakh rupees. I will also
minus this.
This will be my Capital Gain.
Capital Gain.
How much will it be?
If 2 lakhs out of 2 crores, then 1 crore will be 98 lakhs.
If 1.5 crores are gone, then 48 lakhs are left. And if 10
crores are gone, then 38 lakhs are left.
So, this 38 lakhs is my Capital Gain.
I have to pay tax on this.
I have to pay tax on this value, not on this value.
This is generally a confusion.
Director sir, if you can focus this a little bit.
A little bit here.
A little bit on that side. Yes, that's fine.
Generally, people get confused that you have to pay tax on
sales.
But this doesn't go on sales.
You minus your expenses from sales.
The money you give to the broker, that will be minused.
The value on which you have bought that house, that will be
minused.
You made some other improvements in it.
You made some repairs.
Even that is nothing compared to your pocket money.
Because of the repairs, the price increases a little.
You go to sell an old house.
The customer will put a value on it.
But if I get an old house whitewashed, get it painted, get
the null level fixed, that person won't feel that it is an
old house.
The customer will always put a little more value on it.
So, I am telling you a life lesson.
Whenever you sell an old property, it is not that you have
sold the old property because its walls are coming off.
Whenever you sell an old property, get it repaired.
You will get a cost of Rs. 50,000-60,000.
But that Rs. 50,000-60,000 will go to your house for an
extra Rs. 3-4 lakhs.
Spending Rs. 50,000 will give you a profit of Rs. 3-4 lakhs.
Get it whitewashed, get the null level fixed, get the
bathroom tile well repaired, get it cleaned properly, get a
sweeper installed.
You won't feel that it is an old property.
Keep this in mind.
In the future, you will buy or sell a property.
Whenever you do this, keep this in mind.
It is an old house, get it whitewashed, get the condition
right.
It sells well in the upper half.
I have also done this.
I had spent only Rs. 30,000 and got a profit of Rs. 3 lakhs.
Okay? Now you understand the format.
Sale consideration.
Minus the money that you have given to the broker.
So, this value that comes out, what do we call this?
Net.
Net sales consideration.
From this net sales consideration, you will be able to
minus all these things.
Minus all the houses that you have bought.
Minus all the expenses that you have spent on repairing.
What will come out?
Short term or long term capital gain will come out in that
case.
Short term or long term.
Because in this case, we are talking about immovable
property, land and building.
So, my Arjun, what does Arjun mean?
Sir, Arjun is that person who listens to his teacher, his
guru.
I call him Arjun.
You are all Arjun for me.
Whatever your name is, I will call you by Arjun's name.
So, my Arjun, look at the notes of the old lectures and
tell me, how much holding period did we see in this?
In land and building.
Sir, land and building and unlisted shares, you did it
together.
It was for two years.
If you have a holding period of two years, if you hold a
house for two years, then short term capital gain will be
there.
And if you hold a house for more than two years, then long
term capital gain will be there.
Both have different taxes.
And both have different systems.
I will tell you what.
In this example, I said that you bought a house one year
ago.
So, minus all these expenses.
But suppose I say that you bought this house three years
ago.
Why did I say three years?
So that what becomes? long term.
If it is more than 2 years, it becomes long term.
Suppose you bought it 3 years ago.
Forget 3 years, suppose you bought the house 10 years ago.
So, tell me one thing, you still have to minus all these
things.
When you go to sell the house, you have to minus the money
you give to the broker.
The value at which you would have bought the house, you
would have minused that too.
But tell me one thing, the value at which you bought the
house 10 years ago, if you go to buy that house today, will
you get it at the same value? Will you get it at the same
value? The property rates of 10 years ago and the property
rates of today, are they the same? Is the property rate not
high? Is it the same? If it is a 2BHK flat, let's say it is
like this, let's talk about 1980, the sea facing bungalow
was bought by Mr.
Bachchan. And why Mr.
Bachchan? Rajesh Khanna bought it.
I remember it well.
I have read somewhere that in 1973, Rajesh Khanna bought a
bungalow worth Rs.
31 lakhs, a sea facing bungalow.
If you go to buy a sea facing bungalow today, will you get
it for Rs.
31 lakhs? Can you get a sea facing bungalow for Rs.
31 lakhs?
No, you can't.
Why can't you get it? Sir, inflation has also increased.
Inflation has also increased.
In 40-50 years, won't its value increase? Yes, it will
increase.
So you tell me one thing, what are you doing? What are you
doing? You are doing this, that out of sale consideration,
you are minusing the cost of the acquisition.
This is sale consideration.
Out of this, you have removed the expenses of the broker.
You have come to net sales.
And out of this, what are you minusing? Cost of the
acquisition, which you call COA.
In short, COA.
Cost of acquisition, how much did you buy it for? Let's
take the example of Rajesh Khanna.
Let's assume that in today's rate, a sea facing bungalow
won't come for less than Rs.
100 crores.
It will be Rs.
100 crores.
Let's assume that you give it to the broker for Rs.
1 crore.
Because it is a big transaction, 1%, 2%
Net sales, Rs.
99 crores.
I am saying Rs.
99 crores.
Out of this, the cost of acquisition, if I minus Rs.
31 lakhs, as compared to how much I actually bought it.
Brother, shall I tell you one thing? This much capital gain
will come, the person will be robbed.
Out of Rs.
99 crores, if you minus Rs.
31 lakhs, then Rs.
98 crores, 69 lakhs will be
You are saying that I need tax on this.
Brother, shall I tell you one thing? Capital gain of Rs.
98 crores.
The person will be robbed while giving tax.
He will say, brother,
I don't want to do the property work.
Keep it with you.
I don't sell it.
The more, the more, or the less I keep it, the cost of the
acquisition, the thing to be minused, if I keep it less
than less, then my capital gain will be more.
In a way, I am minusing the expense.
If I show my expense as less than less, then my profit will
be more than more.
The person will be robbed.
And practically, if we see practically, then isn't this
wrong?
Could I have got that house for Rs.
31 lakhs today? I couldn't get it.
So why am I taking the value of Rs.
31 lakhs? Brother, Rajesh Khanna will reach in the finance
ministry.
He will say, Babu Mishra, I tell everyone, I hate tears,
Pushpa, and you are giving me tears.
So madam said, the thing is right.
In Rs.
31 lakhs, in today's rate, such a bungalow is not possible.
You do one thing, adjust its value.
What did I say? Adjust its value according to how much is
today's inflation.
According to today's inflation, adjust its value.
Assume that today's value is Rs.
91 crores.
I calculated its rate according to today's inflation.
So the rate is Rs.
91 crores.
If I bought it today, it would have been
Rs. 91 crores.
This sounds reasonable.
That it is a sea-facing bungalow, it would have been Rs.
91 crores.
But it was not Rs.
31 lakhs.
And look at the benefit.
Rs. 99 crores is my net sale consideration.
If I am reducing more expenses from that, then my profit
will be less.
So how much will I get? In this case, Rs.
8 crores will be left.
My capital will
be reduced by Rs.
8 crores.
My capital will be reduced by Rs.
8 crores.
What did I do?
I reduced the purchase from the sales.
There are some expenses, I removed them.
And which purchase? I did the actual purchase cost.
I did not do the actual.
I did the purchase cost that if I had gone to buy that
bungalow today, then how much money would I have to give it
today? Which is practically right.
You are selling a bungalow worth Rs.
31 lakhs which is worth Rs.
100 crores.
You are reducing it by Rs.
31 lakhs.
That too when it was purchased 50 years ago at the rate of
Rs.
31 lakhs.
I am selling it for Rs.
100 crores today.
What is my mistake? That I have held it for 50 years.
This is my mistake.
If I have held my ancestral property for 50 years, then
this is my mistake.
I am selling it for
Rs. 100 crores on market value. And you are reducing my
actual cost, 50 years old cost.
Sir, when I am taking the market value in my sales, then
purchase also according to my market value.
And take my tax from the profit that has come out according
to that.
Which is practically right.
People have land in villages.
Assume that this was your land.
Your grandfather bought it according to Rs.
10,000. Your great-grandfather or in the time of
Britishers, for example, bought it for Rs.
10,000, Rs.
20,000, Rs.
If you sell it today, it will sell for Rs. 10 crores. Will
you reduce Rs. 500 out of Rs.
10 crores? You will reduce that value out of Rs.
10 crores.
If I go to buy it today, what benefit will I get from it? I
will reduce that value.
That is it.
Its value has to be adjusted.
And what is its name? Its new name is Indexed Cost of
Acquisition.
Indexed Cost of Acquisition.
Sir, in this case, you have not reduced the cost of
improvement.
The bungalow has been there for 50 years. Some repairs must
have been done in 50 years.
Some construction must have been done inside the house.
Sometimes the roof must have been covered. Sometimes the
balcony must have been broken.
Yes, absolutely.
So, sir, do you want to take that also in actual or what do
you want to do?
No, sir, adjust that also. What is its name? Indexed Cost
of Improvement.
Sir, when does this index work? This file works in the case
of long term.
Only if you have a long term property.
If you hold the property for more than 2 years, then it
becomes long term.
What is the benefit of that?
The benefit of that is that your purchase cost is shown as
a little higher, minus.
If you do not take the actual purchase, you get the benefit
that you do not take the actual purchase cost.
You increase it a little. You increase the purchase cost a
little according to today's cost.
And you get a big thing to be minused. So, ultimately, your
profit is less.
It is a simple thing. If I reduce Rs. 5 from Rs. 100, then
the profit is Rs. 45.
Similarly, if I reduce Rs. 90 from Rs. 100, then the profit
is Rs. 10.
How much will be the tax? Rs. 10. This is the benefit of
long term investment.
So, whenever you buy a house, according to the purpose of
investment, try to hold it for 2 years.
Because if you hold it for 2 years, it will become long
term for 2 years.
In long term, you can reduce your purchase cost by reducing
the actual cost.
If you sell it before 2 years, you will have to reduce the
actual cost.
The actual cost will be minused.
In the case of short term. In the case of long term, it is
the indexed cost.
This is the point.
Now, what is indexation? How is it indexed?
It is done according to the cost. We will limit it to this
in this lecture.
If I do indexation, it will become a little heavy. I will
cover it in the next lecture.
First, understand this. It is a short term capital asset.
First, check the duration.
First, see what the asset is.
Are they shares?
Is it a property or a jewellery? First, look at the asset.
What is the corresponding period of holding of that asset?
If it is 1 year, is it 3 years or 2 years? Is it short term
or long term?
This is what you have to check.
If it is short term, there are some expenses from the sales.
Minus the cost of the acquisition.
Minus any small improvement that you have made.
But if it becomes long term, you don't have to reduce the
cost of acquisition.
You have to reduce the indexed cost.
If you had bought it according to today's cost, how much
would you have bought?
and the cost of improvement will be indexed that according
to today's inflation if you would have done the improvement
then how much would have been the improvement
I will revise it in the next lecture, don't worry
We will stop it here for now
In the next lecture we will discuss how to do the index
That's all for now, thank you very much