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An Easy Guide to Calculating Capital Gains Tax on Property in India

If you’re planning to sell your property in India, you must know everything about Capital Gains Tax. Capital Gains are profits earned through sales of capital assets, and you are supposed to pay tax on it while selling a property.

If this is your first time hearing about it, don’t worry. This article will guide you through calculating capital gains tax on any property in India. Let us get started!

Capital Gains Tax in India: An Overview

According to the Income Tax Act, all the gains and losses acquired through the sale of capital assets are liable for taxation. That is because any profit that you earn from such a sale falls under the category of income. Therefore, you will have to pay tax on it.

A capital asset can be a house, land, stocks, bonds, etc. As per regulations, the tax paid on these is known as the Capital Gains Tax. The tax amount must be paid in the financial year in which the transfer of the capital assets takes place.

One must note that these tax laws are not applicable when you inherit a property. That is because there is only a transfer of ownership in such a case and not a sale. Furthermore, this tax does not apply to assets received as gifts or through a will.

What are the Types of Capital Assets?

Calculation of capital gains taxes depends upon the type of capital gained. So, let’s take a look at its types:

1. LTCG or Long-Term Capital Gains Tax: An asset is a long-term capital asset if held for more than 24 months. While calculation these taxes, you should also consider factors such as inflation.

2. STCG or Short-Term Capital Gains Tax: An asset held for 24 months or less is considered a short-term capital asset. Short-term gains are calculated by adding the total income to the Income Tax based on the seller’s tax bracket.

Calculating Capital Gains

You will need to gather the following information to calculate capital gains tax. With adequate knowledge, you can do the calculation using an online calculator.

  • Purchase Price
  • Selling Price
  • Sale Details (Date of sale and more)
  • Purchase Details
  • Investment details

Terms You Need to Know

Here are some terms you need to know to complete the calculation:

  • Cost of Acquisition: The value at which you acquired the property.
  • Cost of Improvement: The expenses incurred in making any alteration or additions to the capital asset.
  • Full Value Consideration: The consideration received as a result of the complete transfer.
  • CII or Cost Inflation Index: This term is considered when talking about long-term capital gains. The government fixes and declares the index every year.

Note: Improvements made before 1 April 2001 are not taken into consideration.

Capital Gains Calculation Formula

The formulae used to calculate capital gains are given below:

Short-term Capital Gains Tax = Full Value Consideration – (Cost of Acquisition + Cost of Transfer + Cost of Improvement)

Long-term Capital Gains Tax = Full Value Consideration – (Indexed Cost of Acquisition + Cost of Transfer + Indexed Cost of Improvement)

Where,

Indexed Cost of Acquisition = Cost of Acquisition * Cost Inflation Index of the Year of Transfer/Cost Inflation Index of the Year of Acquisition

Indexed Cost of Improvement = Cost of Improvement * Cost Inflation Index of the Year of Transfer/Cost Inflation Index of the Year of Improvement

The following expenses are deductible from the total sale price for house properties:

  • Cost of stamp papers
  • Traveling expenses
  • Commission or brokerage paid for securing the purchase
  • Expenses incurred with procedures associated with inheritance and will. These include costs of executor and cost of obtaining succession certificate.

Final Verdict

The Capital Gain acquired via investing in property is very high in the country. Income Tax laws regulate these gains by dividing them into long-term capital assets and short-term capital assets.

By gathering accurate information, you can easily calculate your capital gains tax. Besides, there are plenty of online calculators that can help you compute the number.

On the other hand, you can hire a CA to help you with all this. Nonetheless, make sure to invest in the right place!

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