Capital Gain Tax on Sale of Property (Long Term / Short Term) in India is a tax on gain arising on transfer of property.
Here property can be movable as well as immovable.
Gold / Jewellery / Art Work / Land / Building are all covered under property and upon sale of such property.
If any gain arises then you have to pay tax on
such capital gain.
Capital
gain may be long term or short term depending on how much time you hold the
asset before transferring it.
In the following, we have clearly explained the concept of Capital Gain Tax on Sale of Property (Long Term / Short Term):
What is Capital gain tax on sale of property?
It
is a tax on profits and gains arising from transfer/ sale of property. Income
from sale of property is chargeable under the head ‘Capital gain’.
If
upon sale / transfer of property any profits and gain arises then it must be
classified into long term capital gain or short term capital gain and calculate
capital gain tax accordingly.
What are Short term / Long term capital gain tax on sale of property?
Under
the ‘Capital gain’ head, property can be moveable or immovable. So the
criterion of categorizing into long term capital gain or short term capital
gain is different for movable and immovable property.
For moveable property (Gold / Jewellery / Artwork etc.)
If
assessee holding any moveable property for 36 months or less immediately
preceding the date of transfer then these are called short term capital asset
and accordingly he has to calculate short term capital gain.
But
if the assessee holds the moveable property for more than 36 month and then he
sells the moveable property then in such a case it is a long term capital asset
and he has to calculate long term capital gain tax.
Example:
If
Mr. A sells Gold in FY 2019-20 after 36 months from the date of acquisition,
then any gain arising will be termed as long term capital gain(LTCG). But if he
sells before the expiry of 36 months then it is short term capital gain (STCG).
For Immovable property (Land or Building or Both)
If
assessee holding any immovable property for 24 months or less immediately
preceding the date of transfer then these are called short term capital asset
and short term capital gain tax (STCG) is computed.
But
he holds more than 24 months from the date of acquisition of immovable property
then long term capital gain tax (LTCG) is computed.
Example:
If
Mr. A buys a House on 1-7-2017 and sells it on 1-11-2018 then in this case he
holds the property for less than 24 months, so if any gain arising then the
same is to be treated as short term capital gain.
Also Read: Income Tax Slab Rates: Individual, Senior Citizens (FY 2021-2022)
What is the capital gain tax rate on sale of property?
|
Property |
Capital Gain Tax Rate |
|
|
Short Term Capital Gain |
Long Term Capital Gain |
|
|
Moveable property (Gold / Jewellery / Artwork
etc.) |
Tax will be calculated on a normal slab rate basis. |
20% (Indexation to be applied) |
|
Immovable property ( Land or Building or Both |
||
How to calculate short term capital gain tax on sale of property?
Whether
the property is immovable or moveable, the method of calculation of capital
gain is sale in both the cases.
Computation of short term capital gain
|
Particulars |
Amount Rs. |
|
Full value of consideration (-) Cost of acquisition (-) Cost of Improvement (-) Expense on transfer |
x x x x x x x x x x x x x x x x x x x x |
|
Gross Short Term Capital Gain (-) Exemptions (if any) |
x x x x x x x x x x |
|
Taxable Short Term Capital Gain |
x x x x x |
Example:
If
Mr. A buys a house on 1-7-2017 for Rs. 10 Lakhs and incur cost of improvement
of Rs. 6 Lakhs for construct its first floor on 1-11-2017. He sold the house on
1-11-2018 for Rs. 30 Lakhs and paid brokerage of 2%.
Solution:
As
Mr. A holds the house for less than 24 month [1-7-2017 to 31-10-2018] so short
term capital gain tax will be computed.
|
Particulars |
Amount Rs. |
|
Short Term Capital Gain Full value of consideration (-) Cost of acquisition (-) Cost of Improvement (-) Expense on transfer |
30 Lakhs (10 Lakhs) (6 Lakhs) (1.60 Lakhs) |
|
Gross Short Term Capital Gain (-) Exemptions (if any) |
12.40 Lakhs ----- |
|
Taxable Short Term Capital Gain |
12.40 Lakhs |
Short
term capital gain tax will be calculated on Rs.12,40,000 on normal slab rate
basis.
Also Read: Income Tax Rate: Companies, Partnership Firm, LLP (FY 2021-2022)
How to calculate long term capital gain tax on sale of property?
For
computing long term capital gain you must calculate capital gain according to Cost Inflation Index.
Chart of Cost Inflation Index
|
Srl. |
Financial Year |
Cost Inflation Index |
|
1 |
2001-02 |
100 |
|
2 |
2002-03 |
105 |
|
3 |
2003-04 |
109 |
|
4 |
2004-05 |
113 |
|
5 |
2005-06 |
117 |
|
6 |
2006-07 |
122 |
|
7 |
2007-08 |
129 |
|
8 |
2008-09 |
137 |
|
9 |
2009-10 |
148 |
|
10 |
2010-11 |
167 |
|
11 |
2011-12 |
184 |
|
12 |
2012-13 |
200 |
|
13 |
2013-14 |
220 |
|
14 |
2014-15 |
240 |
|
15 |
2015-16 |
254 |
|
16 |
2016-17 |
264 |
|
17 |
2017-18 |
272 |
|
18 |
2018-19 |
280 |
|
19 |
2019-20 |
289 |
|
20 |
2020-21 |
301 |
By
using indexation, your cost will increase, which leads to reduction in gains
and hence reduction in tax liability.
Formula for Indexed cost of acquisition
Indexed cost of Acquisition = Cost
of Acquisition * CII of the year of transfer / Cost Inflation Index (CII) of
the year in which asset is first acquired by seller OR CII of 2001-02 whichever
is later
Formula for Index cost of Improvement
Indexed cost of Improvement = Cost
of Improvement * CII of the year of transfer / Cost Inflation Index (CII) of
the year in which improvement took place.
Example:
If
Mr. A buys a house on 1-7-2012 for Rs.10 Lakhs and incur cost of improvement of
Rs.6 lakhs on 1-11-2017. He sold the house for Rs.40 Lakhs on 1-11-2018.
Solution:
Mr.
A held the house for more than 24 months [1-7-2015 to 31-10-2018]. Hence long
term capital gain should be calculated by using indexation.
|
Particulars |
Amount Rs. |
|
Full value of consideration (-) Indexed Cost of acquisition [10 Lakhs * CII of
2018-19 / CII of 2015-16] i.e. [10 Lakhs * 280
/ 254] = Rs.1102362 (-) Indexed Cost of Improvement [6 Lakhs * CII of
2018-19 / CII of 2017-18] i.e. [6 Lakhs * 280
/ 272] = Rs.617647 (-) Expense on transfer |
4000000 (1102362) (617647) ------ |
|
Gross Long Term Capital Gain (-) Exemptions (if any) |
2279991 ------ |
|
Taxable Long Term Capital Gain |
2279991 |
Tax
will be calculated on long term capital gain (LTCG) on Rs. 2279991
What are exemptions available for transfer of property?
For
saving capital gain tax on transfer of
property you can avail exemption from capital gain and can save tax. After
fulfilling conditions of individual exemption you are allowed to take exemption
from capital gain tax.
Following
are the exemptions available for transfer / sale of property under section 54, 54B, 54D.
Section 54: Exemption from capital gain on transfer of property used for residence
Individual
or HUF can avail exemption from long term capital gain only upon transfer of
residential house property.
Conditions
- Purchase one residential house in India within one year before the date of transfer of property or two years after the date of transfer of property. OR
- Construct one residential house in India within 3 years after the date of transfer of property.
If
the amount of capital gain does not exceed Rs.2 Crore then assessee has the
option to either purchase / construct 2 residential houses keeping all other
conditions the same.
Hence
assessee needs to reinvest capital gain in purchase / construction for availing
exemption.
For detail read: Section 54: Exemptions on capital gain on transfer of residential property
Section 54B: Exemption in case of transfer of agricultural land
Individuals
or HUF can take exemption from both short term and long term capital gains upon
transfer of agricultural land.
Conditions
- Reinvest capital gain amount on purchase of any other land for agricultural purpose within a period of 2 years after date of transfer.
- Exemptions allowed to the extent of investment (maximum amount of LTCG/STCG)
- Land purchased must not be transferred within 3 years otherwise exemption allowed shall be withdrawn.
Section 54D: Exemption in case
of compulsory acquisition of land or building
of industrial undertaking
Any
assessee can take exemption from both short term and long term upon gain on
land or building transferred by way of compulsory acquisition, which was in use
for the purpose of business undertaking for 2 years immediately preceding the
date of transfer.
Condition
- Reinvest capital gain in purchase of other land or building or construct building (for shifting or re-establishing) within 3 years after date of transfer.
- Exemption is allowed to the extent of investment (maximum upto the amount of LTCG/STCG)
- Purchased / constructed land or building must not be transferred within a period of 3 years otherwise exemption allowed shall be withdrawn.
Summary
Capital gain tax on sale of property in India can be long term capital gain tax or short term capital gain tax. Firstly you have to calculate long term/ short term capital gain and by applying tax rate calculate capital gain tax. Certain exemptions are also available from computing capital gain (on fulfillment of certain conditions).
Also Read: Capital Gain Tax - Long Term & Short Term in India