Capital Gains Tax
Capital gains is the profit that the investor realizes when he sells
the capital asset for a price higher than its purchase price. The
transfer of capital asset must be made in the previous year. This is
taxable under the head ‘Capital Gains’ and there must exist a capital
asset, transfer of the capital asset and profit or gains arising from
the transfer.
Capital Gains include any property held by the assesse except the following:
- Stock in trade.
- Consumable stores or raw materials held for the purpose of business or profession.
- Personal effects that are movable except jewellery, archaeological collections, drawings, paintings, sculptures or any art work held for personal use.
- Agricultural land. The land must not be located within 8kms from a municipality, Municipal Corporation, notified area committee, town committee or a cantonment board with a minimum population of 10,000.
- 6.5 percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.
- Gold Deposit bonds under Gold Deposit Scheme.
What is Capital Gains Tax?
Capital gains tax is a tax that is charged on the profits that he has
made by selling his capital asset. For making it easy for taxation, the
capital assets are classified to ‘Short-Term Capital Asset; and
‘Long-Term Capital Asset’.
- Short-Term Capital Asset:
If the shares and securities are held by the taxpayer for a period
not more than 36 months preceding the date of its transfer will be
treated as a short-term capital asset.
- Long- Term Capital Asset:
If the taxpayer holds the shares and securities for a period
exceeding 36 months before the transfer will be treated as a long-term
capital asset.
Equity shares which are listed in a recognised stock exchange, units of equity oriented mutual funds, listed debentures and Government securities, units of UTI and Zero Coupon Bonds’ period of holding will be considered for 12 months instead of 36 months.
Transfer is giving up your right on an asset it includes sale, exchange, compulsory acquisition under any law and relinquishment.
Capital Gains Tax in India:
In India, the long-term capital gains on stocks and equity mutual
funds are not taxed. But, the short term gains will be taxed at 15
percent. In case of debt mutual funds, both short and long term capital
gains are taxed. The short-term capital gain on debt mutual fund is
added to the income and taxed as per the individual’s income tax slab
and the long-term capital gains on debt mutual funds are taxed at 20
percent with indexation and 10 percent without indexation. Indexation is
adjusting the purchase value for inflation. The indexation increases
the purchase cost and lowers the gain.
The taxpayer can avail the capital gains statement from CAMSOnline and Karvy, they send the statement through the mail.
Computation of Capital Gains:
The computations for the capital gains are as follows:
Short-term capital gain = Full value consideration- (cost of acquisition + cost of improvement + cost of transfer)
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
Cost of transfer is a brokerage paid for arranging the deal, legal expenses incurred, cost of advertising, etc.
For Example:
Mr. Sharma is a resident individual and he sells a residential house
on 12/4/2013 for Rs.25,00,000. He had purchased the house on 5/7/2011
for Rs.5,00,000 and spent Rs.1,00,000 on its improvement during May
2012. During the previous year, 2013-2014, his income under all heads
excluding capital gains was NIL.
Since the asset was held for less than 36 months, it is a short term capital asset and the
Short-term capital gain = 25,00,000 – 5,00,000 – 1,00,000
= 19,00,000
In case Mr. Sharma is selling the house on 12.3.2015 for the same price, then he would’ve had the asset for over 36 months.
The indexed cost of acquisition will be 5,00,000 X 852/711 = 5,99,156
The indexed cost of improvement will be 1,00,000 X 852/785 = 1,08,535
The long-term capital gain = 25,00,000 – (5,99,156 + 1,08,535) 707691 = 17,92,309
Capital Gain Index:
It is important to know about the cost inflation index when you are
calculating the long-term capital gains. The long-term capital gain is
computed by deducting the indexed cost of acquisition and indexed cost
of improvement.
The concept of indexation was introduced as the value of a rupee
keeps changing due to inflation. If it is fair to pay more for a
toothpaste over the years, it is fair to pay capital gain tax with
incorporating the effect of inflation on your purchase. Indexation lets
you show a higher purchase cost of the capital asset that you bought,
this helps lower your overall profit.
The acquisition price is indexed by a factor called the Cost Inflation Index (CII).
CII is the CII for year in which the asset is transferred divided by
the year in which the asset was acquired. The CII is then multiplied
with the purchase price to arrive at the indexed acquisition cost. The
cost inflation index for the current year 2015-2016 is 1081.
Capital Gain Tax on Property:
Selling a house attracts tax and it is charged on the amount gained
from the sale and not on the entire amount itself. If you sell the
property in three years, then it is termed as short-term capital gain
and will be taxed directly as per the income slab you fall under. It
attracts a flat 20 percent tax.
The long-term gain arising from the sale of a capital asset is exempt
under Section 54 and 54F if invested in purchase or construction of a
house property subject to certain conditions. To get the exemption, the
taxpayer has to purchase the residential house within a period of 1 year
before or 2 years after the transfer of the original house. Under
construction properties must be completed within 3 years from the date
of transfer of the original house. The investment on the house property
must be situated in India. This will apply to the assessment year
2015-2016 and for the subsequent years.
The advance that will be paid for sale of property will be taxed and
it will be later fortified by individuals for sale of flat if the
transaction does not go through. The amount will be taxed in the same
year under ‘income from other sources’. Such amount can be reduced from
cost of acquisition of the asset in the year of sale of the capital
asset while determining the capital gains.
You can buy or build a house from the capital gain within 2 years of
selling the property. You can book a flat with the capital gain and save
the tax. You can also save tax by investing the capital gains in
special Capital Gains Account Scheme (CGAS) with the bank. Another
option is to invest in specified bonds such as Rural Electrification
Corp. Ltd. and National Highways Authority of India within 6 months from
the date of sale of the property.
Remember that with one sale of property, you can invest in only one
new asset and you cannot invest in multiple acquisitions to reduce the
tax. If you are selling more than one property, you can invest the
cumulative capital gain amount in only one new property.
Capital Gains Tax Exemption:
- Agricultural land in rural area in India is not considered as a capital asset and therefore no capital gains will be applicable on its sale.
- You will not be taxed if you use the entire sale proceed of your
capital asset to buy a house property. You must satisfy the following
conditions to avail exemption under Section 54F:
- You will have to purchase a house in 1 year before or 2 years after the sale.
- Under construction properties must be completed within 3 years from the date of transfer of the original house.
- You will not sell the house within 3 years of the purchase or construction.
- The new house must be situated in India.
- You must not own more than 1 residential house other than the new one on the date of transfer.
- You do not purchase a new house apart from the new one within 2 years or construct a residential house within a period of 3 years.
When you satisfy these conditions and when you invest the entire sale
proceeds towards the new house, you won’t have to pay any tax on the
capital gain.
- When you invest in Capital Gains Account Scheme, then you won’t have to pay tax on the capital gains. However you must invest the money for a specified period as specified by the bank. If you fail to keep the money invested for the specified period, then it will be treated as capital gain.
- By purchasing Capital Gains Bonds, the tax will be exempted. This is applicable only in case it was a long-term capital asset and the exemption is under Section 54EC. If you don’t intend to invest in another property, then there is no use investing in the Capital Gains Account Scheme. In that case, you can invest in certain bonds for a specified purpose and these are redeemable after 3 years. You will be given a period of 6 months to invest in these bonds.
Capital Gains Bonds:
As per Section 54EC, one can claim tax relief by investing the
capital gains earned from long-term capital assets in bonds issued by
National Highway Authority of India or by the Rural Electrification
Corporation Limited. The investment in bonds must be done within a
period of 6 months. These will not be redeemable before 3 years. You can
earn a guaranteed rate of interest on the bond. The maximum amount that
can be invested in capital gain bonds is Rs.50,00,000 during a
financial year. This benefit cannot be availed for a short-term capital
gain.
Capital Gain Tax Calculator:
Capital gain calculators are easily available online to help you
ascertain the capital gain that you have made on the sale. You will have
to fill in the following details:
- Purchase price
- Sale price
- Number of units
- Purchase details like the date, month and the year it was purchased on.
- Sale details like the date, month and the year it was sold on.
- Investment detail. You can invest the capital gains toward share, debt mutual funds, equity mutual funds, real estate, gold and fixed maturity plan.
On hitting the calculate capital gain button, you will be provided the following details:
- Investment type.
- Time between the purchase and the sale.
- Gain type, if it is a short-term capital gain or a long-term capital gain.
- Difference between the sale and purchase price.
- Cost inflation index of the year of purchase.
- Cost inflation index of the year of sale.
- Purchased index cost.
- Difference between the sale and the indexed purchase price.
- Long-term capital gain without indexation.
- Long-term capital gain with indexation.
The long-term capital gains on stocks and equity mutual funds are not
taxed whereas the short term gains are taxed at 15 percent. The
short-term capital gain on debt mutual fund is added to the income and
taxed as per the individual’s income tax slab and the long-term capital
gains on debt mutual funds are taxed at 20 percent with indexation and
10 percent without indexation.
Capital Gains Account Scheme 1988
Capital Gains Account Scheme 1988 as notified by Central Government GSR 724(E), dated 22-6-1988Capital Gains Account Scheme 1988 forms in Excel, which you can Fill before Print.
| Form No. / Link | Description |
|---|---|
| Form A | Application for opening an account under the Capital Gains Accounts Scheme, 1988 |
| Form B | Application for conversion of accounts under the Capital Gains Accounts Scheme, 1988 |
| Form C | Application for withdrawal of amount from account-A under the Capital Gains Accounts Scheme, 1988 |
| Form D | Details regarding the manner and extent of utilisation of the amount withdrawn from account under the Capital Gains Accounts Scheme, 1988 |
| Form E | Form of nomination under the Capital Gains Accounts Scheme, 1988 |
| Form F | Application for cancellation or change of nomination previously made in respect of account under the Capital Gains Accounts Scheme, 1988 |
| Form G | Application for closing the account under the Capital Gains Accounts Scheme, 1988 by the depositor |
| Form H | Application for closing the account under the Capital Gains Accounts Scheme, 1988, by the nominee/legal heir of the deceased depositor |
About forms :-
- The forms can be downloaded for free by users of this site for their personal use. The forms are not available for publishing on any web site / blog.
- The forms compiled in Excel format are protected by password to prevent accidental deletion of inbuilt formulas and to check their unauthorized publication. The password of the forms will not be shared with any person.
- Report of any errors / omissions in forms will be promptly attended to. Other requests will be entertained on merits.
- The forms are amended on an ongoing basis to
- Remove errors / omissions noticed by us / advised by the users of forms.
- Incorporate changes made in the forms by the form issuing departments / agencies.
- Make the form more user friendly.
How to Calculate Capital Gains Tax on Shares
Capital gains are the rising worth of an investment that makes its current value higher than when it was originally bought by the owner. So if you bought shares of a company at Rs. 25 lakh in 2008 and the current value of the shares is Rs. 35 lakh, then the capital gains would be equal to Rs. 10 lakh in 8 years. However, if you do not sell the shares, then the capital gains are not realised and you make no profit. On the other hand, if the worth of the investment has depreciated over a period of time, you incur capital loss if you sell it.
There are two types of capital gains – short-term and long-term.
Short-Term Capital Gains:
As per the Income Tax laws of India, if an investor holds an immovable asset for less than 36 months before selling it, it would be considered a short-term capital gain. But this is not applicable to stocks and bonds. Stocks, shares and bonds are faster-moving compared to real estate. Because of this, if they are held for 12 months or less before sale, they fall under short-term capital gains. However, this rule is applicable only to securities which are listed and traded on the stock exchange. If you are trading in unlisted or over-the-counter securities, then the 36-month rule applies.
Aryan Sharma bought gold exchange traded funds worth Rs. 1 lakh in January 2015 and sold them on the stock exchange in August 2015, after just 7 months. Here, his income from the sale of the ETFs will fall under short-term capital gains. If he bought an unlisted stock in April 2013 and sold it in January 2016 – after 33 months – it will still be under short-term capital gains.
Long-Term Capital Gains:
Income Tax laws in India specify that immovable property held for more than 36 months – or 3 years – before sale, fall under long-term capital gains. For stocks, shares and bonds, this period is more than 12 months instead of 36 months. Unlisted securities, on the other hand, will be considered as long-term capital gains only if sold after 36 months.
Rita Mehta bought shares of a company that is not listed on any stock exchange in India, in January 2013, and sold them in March 2016. This means she held the shares for 38 months, and hence her income from sale of the shares falls under long-term capital gains. If she had bought the shares of a BSE-traded stock in January 2015 and sold them in February 2016, after 13 months, they would still be considered long-term capital gains.
How to calculate Capital Gains on Shares?
Short-term capital gains can be computed by subtracting the following 3 items from the total value of sale:
- Brokerage or expenditure incurred in connection with the sale of the asset
- Purchase price of the asset
- Full sales value – Rs. 48,000
- Brokerage at 0.5% - Rs. 240
- Purchase price – Rs. 38,750
Calculating the long-term capital gains is a little more complicated. The 3 items you need to subtract from the total sales value are:
- Brokerage or expenditure incurred in connection with the sale of the asset
- Indexed purchase price of the asset
The formula to check the indexed purchase price of the asset is: Cost of purchase multiplied by CII of the year of sale divided by CII of the year of purchaseFinancial year CII 2010-11 711 2011-12 785 2012-13 852 2013-14 939 2014-15 1024 2015-16 1081
Let us tweak the above example a bit to illustrate long-term capital gains. Sandeep bought 250 shares of a listed company in October 2014 at a cost of Rs. 145 per share, paying a total of Rs. 36,250. He sold them for Rs. 192 per share in March 2016, after 17 months, at Rs. 48,000. In this case, to calculate long-term capital gains, we first need to check what the Indexed purchase price of the asset is.
Indexed purchase price of the shares = 36250 x 1081 / 1024 = 38268 approximately
So Sandeep’s long-term capital gains are based on the following numbers:
- Full sales value – Rs. 48,000
- Brokerage at 0.5% - Rs. 240
- Indexed purchase price – Rs. 38,268
- Indexed improvement cost – Rs. 0
What is capital gains tax?
Capital gains are taxable. An investor – individual or company – has to pay capital gains tax only if the asset is being sold. If you hold an asset with appreciating value but do not sell it, you do not have to pay capital gains tax. Capital gains tax is applicable to any asset that rises in value over time – be it stocks and shares, or a real estate property such as house, land or commercial space. However, it is not applicable to consumable goods such as food materials or drinks and movable property such as clothes, jewellery, or artworks.
How to calculate Short-Term Capital Gains Tax?
Tax rates differ for short-term capital gains and long-term capital gains. There is a 15% tax on short-term capital gains that fall under Section 111A of the Income Tax Act. This includes equity shares, equity-oriented mutual-funds, and units of business trust, sold on or after October 1, 2004 on a recognised stock exchange, and falling under the securities transaction tax (STT).
Nisha Hegde bought equity shares worth Rs. 1 lakh in January 2013 and sold it in November 2013 after 10 months at Rs. 1.8 lakh. Let us calculate her short-term capital gains tax.
Capital gain: Full sales value – (Brokerage at 0.5% + purchase price) = 1,80,000 – (900 + 1,00,000) = Rs. 79,100
Short-term capital gains tax: Short-term capital gain multiplied by Tax rate divided by 100 = 79,100 * 15 / 100 = Rs. 11,865
Debt-oriented mutual funds and preference shares, however, do not fall under the purview of Section 111A. In this case, the income from the sale of the funds or shares will be added to the regular income of the owner and taxed according to normal individual I-T rules.
How to calculate Long-Term Capital Gains Tax?
Long-term capital gains that fall under Section 10(38) of the Income Tax Act are not taxable. Equity shares, equity-oriented mutual-funds, and units of business trust cannot be subject to tax if:
- the sale is taxable under the STT,
- the shares are a long-term capital asset, and
- the sale has happened on or after October 1, 2004.
Let us see an example to make it clear. Aniruddh Mukherjee bought debt mutual shares in May 2012 at a cost of Rs. 1.5 lakh. He sold it in March 2016 for Rs.3.3 lakh. Since these are debt-oriented mutual fund products, they are taxable at 20% with indexation or 10% without indexation.
The capital gains made by Aniruddh without indexation is Rs. 1,63,500 as per the calculation below:
Full sales value – (Brokerage at 0.5% + purchase price) = 3,30,000 – (16500 + 1,50,000) = Rs. 1,63,500
Purchase price after indexation will be: 1,50,000 x 1081 / 852 = Rs. 1,90,317
With indexation, the capital gains made is Rs. 1,23,183 as per the calculation below:
Full sales value – (Brokerage at 0.5% + indexed purchase price) = 3,30,000 – (16500 + 1,90,317) = Rs. 1,23,183
Let us compare the long-term capital gains tax on both the figures:
Long-term capital gains tax @ 20% with indexation – Rs. 1,23,183 x 20 / 100 = Rs. 24,636.6 Long-term capital gains tax @10% without indexation – Rs. 1,63,500 x 10 / 100 = Rs. 16,350
In this case, long-term capital gains tax without indexation is lower than the figure with indexation. Aniruddh can choose to pay the tax at 10% without indexation.
Capital gains tax can often be complicated to estimate. Apart from the taxes, there are also a small amount of cess and surcharge applicable. In terms of tax, having long-term holdings are better than short-term holdings, as you have to pay a 15% tax on short-term capital gains. Investing in listed securities and equity-oriented mutual funds for long-term holdings also works out better as the capital gains from these sources is not subject to tax.
How to calculate Capital Gains Tax on Real Estate
The Indian government requires its citizens to calculate their capital gains separately since income tax needs to be paid on them, especially they are lump sum amount, which is the case in real estate. The Indian taxing system has made it mandatory since 2008 to report all capital gains. The tax rates are generally the same as the regular income bracket. Yes, as of 2016, the best example of capitalism’s insanity in real estate has been seen in the latest Christian Bale movie, ‘Big Short’. Things are actually no different in India. People do make a lot of money through real estate. However, everything needs to be reported and will be taxed on, unless you take measures to save your tax.
What is Capital Gain on Real Estate?
If you invest in equities and you sell those shares you are taxed on the amount that you gained from each share. The gain is generally calculated as the difference between the price of the share you bought it at and the price of the share when you are selling it. In other ways, you have made an income out of it. Likewise, when it comes to real estate there is a difference in price when you made an investment and then your selling price. This is difference is known as the capital gain in real estate.
However, this amount is taxable just as the difference of a share being bought and sold amount is, by the Indian Government. but if you have made losses in the transaction whether it is equity or real estate, the amount is not table. Equities and real estate obviously are considered long term capital gains since their holding period is generally over 3 years or more. Especially in the case of real estate, holding period makes them specifically long term capital gain.
How to calculate Capital Gain on Real Estate Investments?
let us first calculate the capital gains made on on your real estate investment.
- Note down the purchase price of your real estate investment. Let us take it as a simple number say, Rs. 100. You have bought it 5 years, back and at the moment you are selling it at Rs. 200. So, your capital gain basis is on Rs. 100.
- You then have to also add other costs such as fees or taxes that you paid to acquire the real estate property.
- You need to further add to the original buying price, any sorts of improvements or additional investments such as security systems or resources, etc you made to the real estate or even the costs you had to incur pertaining to this property.All such cost that you had not subtracted from the Rs. 100 may add up to Rs. 30 and will be referred to, as the cost of the real estate a.k.a capital additions.
- Subtract this amount, i.e. Rs. 30 from the original purchase price and also the depreciation or even the amortization costs that you had to bear since the date when you made the real estate acquisition. This is generally applicable in the case if the real estate has been rented out. So, the remainder which lets say, is around Rs. 60, is what is your capital gain.
How to calculate the Tax Payable on Capital Gain From Real Estate?
The gains from real estate is included in the investor's income and hence taxed based on the income slab that the investor falls under. Here is how you actually calculate the tax on the taxable amount of the capital gain you are expected to make:
- Calculate an estimate of the selling price of your real estate.
- Now you would need to conduct through multiplication your marginal long term capital gain rate with the capital gain under circumstances that you have been holding the real estate property for over a year. For example in 2010, the long-term capital gains rate for investors was 15 percent in the ordinary income tax bracket it was 0 percent. This signifies that no tax would have been due in that year. For people whose bracket was in the 25% slab or more than the regular income tax bracket, the long-term capital gains tax rate will be applied at the rate of 15%
- Multiply the capital gain by your ordinary income tax marginal rate in the case that the holding period was only for a year or lower. In such as case, there is no long-term capital gain tax rates that are applicable.
How to Save on Tax on Capital Gains from Real Estate?
There are several spots in the system which allow you to make savings on capital gain tax easily.Here are some of the ways it can be done:
- When you sell a real estate property post 3 years, the tax calculation includes a atter of indexation. The purchasing or acquisition price of the real estate asset is actually recalculated based on this indexation, which considers factors such as inflation for its calculation with the use of the Cost Inflation Index. The advantage here is that the tax on a long term capital gain may be only taxed only at a lower rate after indexation. This helps to reduce the amount of tax payable considerably against the short-term capital gain tax.
- There are also tax saving instruments such as capital gain bonds. The gain that one makes from the sale of the real estate can be hence invested. They generally have a lock-in period of around 3 years. Also, the maximum limit for an individual to invest in these bonds is up to Rs 50 lakhs.
- Often a real estate asset does get identifies and is purchased prior the return for the same has been filed or in the case the due date for filing the tax return, any one of them comes earlier. In such cases the money requires to be deposited in an exclusive account referred to as the Capital Gain Account Scheme (CGAS). This also helps save tax.
- The Income Tax Act in India has provisions for tax exemption of capital gains from the selling price amount of a real estate such as a house in case the taxpayer has makes the gains investment in some other residential property within a period of two years since the selling date of the house or even constructs another house within a time period of three years from the selling date.
How to calculate Capital Gains on Property Sale
When you are selling you property, you are liable to pay tax on the gain earned on the sale of the property. Therefore it is important that you know if you are earning a short term capital gain or a long term gain and the tax rate that is being charged on it. It is crucial that you know what the short term and long term capital gain is.
Short Term Capital Gain:
Gain that arises from transfer of a capital asset that the taxpayer has held for a period not more than months. For instance Mr. Sam sold his property in January, 2016, which he had purchased in May, 2014. The capital gain on the sale is Rs.8,40,000. This will be treated as short term capital gain as he held the property for less than 36 months.
Long Term Capital Gain:
Gain that arises from the asset that has been transferred, which the taxpayer held for more than 36 months. For instance, Mr. Sam sold the property at Rs.8,40,000 capital gain in January, 2016. The property was purchased in May, 2000. The gain will be treated as a long term capital gain as he had held the property for more than 36 months.
Capital Gain Calculation on Sale of Property:
If you have brought a property for Rs.35 lakh and sold it after a certain period for Rs.105 lakh, your profit is Rs.70 lakh. But that profit is not the capital gain. You have to consider the cost inflation indexation and that considerably reduces your capital gain liability.
Cost Inflation Indexation:
It allows you to index the cost price to arrive at a comparable sale price. The cost inflation index number are used to index your capital gain. Reserve Bank of India derives a number each financial year and it takes into account the prevailing prices for the particular financial year.
The cost inflation index (CII) chart is as follows:
Year CII Year CII 1981 - 82 100 2000 - 01 406 1982 - 83 109 2001 - 02 426 1983 - 84 116 2002 - 03 447 1984 - 85 125 2003 - 04 463 1985 - 86 133 2004 - 05 480 1986 - 87 140 2005 - 06 519 1987 - 88 150 2006 - 07 497 1988 - 89 161 2007 - 08 551 1989 - 90 172 2008 - 09 582 1990 - 91 182 2009 - 10 632 1991 - 92 199 2010 - 11 711 1992 - 93 223 2011 - 12 785 1993 - 94 244 2012 - 13 852 1994 - 95 259 2013 - 14 939 1995 - 96 281 2014 - 15 1024 1996 - 97 305 2015 - 16 1081 1997 - 98 331 2016 - 17 TBA 1998 - 99 351 - - 1999 - 2000 389 - -
Indexation Factor is the CII of the year of the sale divided by the CII of the year of purchase.
For example, where Mr. Sam sold his property in January, 2016 which he had purchased in May, 2014 for Rs.30 lakh. The capital gain will be treated as short term capital gain as he held the property for less than 36 months. His indexation factor will be 1081/ 939 = 1.15. This means that the prices of the property has increased 1.15 times since the purchase.
If the property was purchased in May 2000, the indexation factor will be 1081/ 406 = 2.66. The price of the property has increases 2.66 times from the time of purchase. The property you got Rs.30 lakh cost you 2.66 times in 2016 due to inflation and the reducing value of the money.
After you have determined the indexation factor, you have to calculate the indexed cost of acquisition which is the actual purchase price multiplied by the indexation factor. In this case, if you have purchased the property in 2000, the indexed cost of acquisition is Rs.30 lakh multiplied by 2.66 which is Rs.79,80,000.
If you purchased the property in 2014, the indexed cost of acquisition is Rs.30 lakh multiplied by 1.15 which is Rs.34,50,000.
Long term capital gain is the difference between the indexed cost of acquisition and the sale price.
If the property was brought in the year 2000, the gain on the sale will be considered as a long term capital gain. The long term capital gain is Rs.49,80,000 (Rs.79,80,000- Rs.30 lakh).
The capital gain can be further reduced by adding your expenses for property upgrades, expenses of transfer and maintenance. Assuming that you have spent an additional Rs.10 lakh on the maintenance to your property, then your long term capital gain will be Rs.39,80,000 (Rs.49,80,000 – Rs.10 lakh). The capital gain tax is charged at 20% with indexation. So the tax you have to pay is Rs.7,96,000.
The short term capital gain is the difference between the cost price and the sale price of the property. You can also add the maintenance and property upgrade charges to reduce your short term capital gain. The tax you have to pay is as per the income tax slab rate that you fall under. The tax rates are different for the different categories. The different categories are:
- Male individuals below 60 years and HUF
- Female individuals below 60 years
- Senior citizens above 60 years
- Super senior citizens above 80 years
- Co-operative society
- Domestic company, firms and local authority
Tax Deduction:
You can avoid paying the tax if you are reinvesting the amount in another residential property within 2 years or 3 years if it is being constructed from the date of transfer of the property. You can also invest in bonds as notified under Section 54EC of the Income Tax Act. Up to Rs.50 lakhs can be invested in these bonds. If the gain is not utilised to buy another property or to invest in bonds, then it must be deposited in the Capital Gains Account scheme before filing your returns. This will help you claim tax deduction.
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