The present invention provides an improved process for preparation of the substantially pure (3aR,7aR)-4′-(benzo[d]isothiazol-3-yl)octahydrospiro[isoindole-2,1′-piperazin]-1′-ium methanesulfonate (referred to as compound-II), which is useful as a key intermediate for the synthesis of lurasidone ((3aR,4S,7R,7aS)-2-{(1R,2R)-2-[4-(1,2-benzisothiazol-3-yl)piperazin-1ylmethyl]cyclohexylmethyl}hexahydro-4,7-methano-2H-isoindole-1,3-dione). The process comprises reaction of the compound-III (as described herein) with the compound-IV (as described herein) in the presence of a solvent mixture selected from an alcohol and water； and a base The improved process for the preparation of compound II provides the product with total amount of unreacted compound-IV as impurity in less than 0.06% and the product with HPLC purity as ≥99.8%. The process further refers purification of Lurasidone hydrochloride, wherein the product contains the residual acetone <；5000 ppm.
