FMV as on 1 April 2001, explained with real numbers

One rule saves Indian families more tax than almost anything else in the code, and most people have never heard of it. Here it is, properly.

The rule in one paragraph

If you are selling property that was bought before 1 April 2001, you do not have to use the old purchase price as your cost. You may use what the property was worth on 1 April 2001 instead. Since 2001 prices were far higher than prices in the seventies, eighties and nineties, your cost goes up, your taxable gain goes down, and so does the tax.

A worked example

A father buys a Delhi flat in 1985 for eighty thousand rupees. The children sell it today for one crore.

Without the rule, the cost is eighty thousand and almost the entire crore looks like gain.

With the rule, a valuer establishes that the flat was worth about twelve lakh on 1 April 2001. Twelve lakh becomes the cost. The taxable gain falls enormously and so does the bill.

It applies to inherited property too

This is the part that catches people out constantly. If your grandfather bought land in 1970 and you inherited it in 2019, the rule still applies to you. For tax purposes you step into his shoes, so his purchase date is what counts.

Why you cannot just pick a number

People sometimes assume they can write down a generous figure and move on. You cannot, and it is a genuinely dangerous idea. The figure has to be supported by evidence. If a tax officer looks at your report and finds nothing behind the number, they can reject it and refer the matter for a fresh valuation. You then lose the benefit entirely, and there may be a penalty on top.

There is also a ceiling. The 2001 value you claim cannot exceed the stamp duty value of that property as it stood on 1 April 2001. Reconstructing that figure from the records of the period is specialist work, and it is most of what we actually do on these jobs.

One thing NRIs specifically should know

You will read plenty of articles saying you can choose between 12.5 percent flat and 20 percent with indexation, whichever is lower. Read the section carefully. That choice is written for a resident individual or Hindu undivided family. If you are a non resident, you get the flat rate and no indexation option at all. Which makes establishing a properly evidenced 2001 cost more valuable to you, not less.