Calculate LTCG & STCG Tax On Property In India For Capital Gains
Calculate LTCG & STCG Tax on Property- Any profit or gain that results from the sale of a “capital asset” is referred to as a capital gain. Real estate, stock, mutual funds, jewellery, trademarks, and other investments. are considered capital assets. Since the gain or profit is viewed as “income,” you must pay taxes on that particular amount in the same year that the capital asset was transferred.
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Additionally, capital gains do not apply because an inherited property simply involves a transfer of ownership rather than a sale. According to the Income Tax Bureau, gifts and inherited property are specifically exempt. If the inheritor wanted to sell the property, capital gains tax would, nevertheless, be due. This blog has discussed a wide range of capital asset categories, the calculation of capital gain tax, and much more.
Newest capital gains tax news
Debt mutual fund capital gains will be taxed using the Income Tax Slab
March 31, 2023:
Capital Gains Deduction maximum of Rs. 10 crore Finance Minister Nirmala Sitharaman proposed a limitation of Rs. 10 crores for the long-term capital gain tax exemption in the Union budget 2023. The new limit will take effect on April 1, 2023. Reinvestment in residential properties is now eligible for the deduction under Sections 54 and 54F of the Income Tax Act. You can deposit long-term capital gains tax through the Capital Gains Account Scheme, which can then be reinvested in assets covered by Sections 54 and 54F. Major public sector banks provide capital gains account plans.
The Income Tax Act contains provisions in Sections 54 and 54F for claiming long-term capital gains on the sale of real estate and other capital assets. Additionally, it involves reinvesting funds while purchasing a residential property.
In order to better target tax breaks and exemptions, Nirmala Sitharaman, the minister of finance, proposed lowering the deduction for capital gains on investments in residential properties under sections 54 & 54F to Rs 10 crore.
According to a document made available by the ministry, the main objectives of Sections 54 & 54F of the Act were to reduce the severe housing shortage and to encourage the house building industry. However, it has been noticed that high-net-worth assesses are making claims of significant deductions under these provisions by purchasing extremely expensive residential properties. The very purpose of these sections is being undermined.
March 2023:
The Lok Sabha approved the Financial Bill 2023 on March 24, 2023, after receiving more than 45 modifications. The fact that capital gains from debt mutual funds will henceforth be regarded as short-term capital gains is a significant development.
Beginning on April 1, 2023, the long-term capital gains computation for debt mutual funds would no longer include an indexation advantage as per the Budget 2023 amendments. Debt funds that only have a 35% equity share investment would be subject to the current income tax bracket and classified as short-term capital gains. Similarly, bank fixed deposits are taxed.
What therefore should investors in debt mutual funds do?
Individual investors have until the end of March 2023 to invest in debt mutual funds if they want to take advantage of the indexation tax benefit. The indexation benefit will continue to apply to investments made up to March 31, 2023, or until they are redeemed from mutual funds.
The Rajya Sabha will now receive the amended Finance Bill. Additionally, it applies to domestic equity FoFs, gold, and overseas equity FoFs. The changes would take effect on April 1st, 2023.
The taxation of equities shares and equity mutual funds was not changed by the government. If LTCG exceeds Rs 1 lakh in a fiscal year, those taxes will be levied at 10% without an indexation advantage.
How to Define Capital Assets
Any property owned by an assessee, including real estate, buildings, jewellery, cars, machinery, patents, leasehold rights, & trademarks, is referred to as a capital asset. Capital assets include all types of legal rights, including management rights.
Special Cases for Capital Assets
The subsequent items are not regarded as capital assets: –
- Any business stocks
- Consumables or inputs for a trade or vocation.
- Clothing or furniture are not thought of as capital items.
- Indian rural districts with agricultural land
- Gold Bonds of any form, including those from 1977, 1980, Special Bearer Bonds, and National Defence Gold Bonds
What Are the Different Types of Capital Assets?
Assets classified as short-term capital assets (STCA) are those held for 36 months or less. The 36-month tenure for immovable properties, such as buildings, homes, or land, has been lowered to 24 months in the FY 2017–18. As a result, if you sell your property after 24 months of ownership, the income will be regarded as a short-term capital gain.
Long-term capital assets (LTCA) are assets kept for a period of time greater than 36 months. As a result, if you sell your property after more than 36 months of ownership, the proceeds will be regarded as a long-term capital gain.
Tax Table for Asset Sales
A rate chart for taxable income from the sale of assets is provided below:
| Asset | Duration of asset | Rate of tax |
| Mutual funds (focused on equities) | Short term: Less than 12 months | If short term then 15.45% |
| Long-term: More than 12 months | If long term, then it is exempted | |
| transportable property, such as houses and structures | Short term: 24 months or less | If short-term, the income tax slab rate will apply. |
| Long-term: more than 24 months | If long-term, then indexation at 20.6% | |
| Mutual funds (debt oriented) | Short term: Less than 36 months | If short term then the income tax slab rate |
| Long-term: More than 36 months | If long-term, then 20.6% with indexation | |
| Jewellery, royalty, and other movable property | Short term: 36 months or less | If short-term, the income tax slab rate will apply. |
| Long-term: spanning over 36 months | If long-term, then indexation at 20.6% | |
| shares that are traded on a market | Short term: Less than 12 months | 15.45% if it is short-term. |
| Long-term: More than 12 months | It is exempted if it is long-term. |
How to Calculate Property Capital Gains Tax?
The duration for which a property has been owned affects how capital gains are calculated. However, let’s first learn a few phrases that are essential for calculation before we start with the methods to compute capital gains:
- Full Value Consideration: The amount paid by the seller for his capital asset at the final sale price.
- Cost of Acquisition: This is the asset’s value at the time the seller pays for it.
- The Cost of Improvement: Cost of Improvement is the price a seller pays to make improvements to a capital asset.
- Cost of Transfer: The cost of transfer includes any fees incurred during the sale of the asset, such as register fees, brokerage fees, or other costs.
- Indexed Cost of Acquisition: This cost is calculated by utilizing the Cost Inflation Index (CII) to adjust the inflation values over the years that the asset was held. Additionally, this cost can be interpreted as either the FY 2001-2002 (whichever is multiplied by the cost of acquisition later) or the CII of the years in which the asset was bought and sold by the seller.
- Indexed Cost of Improvement: This cost is calculated by dividing the cost of the necessary improvement by the cost inflation index for the year, then multiplying the result by the CII for the year the improvement actually took place.
Short-term versus long-term capital gains: Differences
The table that follows highlights some of the key distinctions between short-term and long-term capital gains.
| Categories | Short Term Capital Gain | Long Term Capital Gain |
| Risk Involvement | Due to the brief period of the transaction, there is little risk associated. | Due to the extensive waiting period, long-term investments carry a higher risk. |
| Meaning | Investing in short-term capital assets might result in short-term capital gains. | Investments in long-term capital assets can result in long-term capital gains. |
| Taxability | Short-term capital gains are subject to a 15% tax. A fee is not included in this. | Short-term capital gains are subject to a 20% tax. However, if you meet certain qualifying requirements, it can be reduced to up to 10%. |
| Amount of Profit Attained | Due to the investors’ ability to hold onto the assets for a little period of time, the profit realized may be reduced. | Assets retained in the market for a longer period of time result in long term capital gains. |
| Market Aspect | These capital gains are quicker to achieve since they are the outcome of investments made with a short-term market outlook. | Since they result from assets that have been invested for a long time, long-term capital gains are typically larger in size. |
Calculation Method for Short-Term Capital Gains
The calculation for short-term capital gains is as follows:
The final sale price less the total of the indexed purchase, improvement, & transfer costs is the long-term capital gain, where:
Calculation Method for Long-Term Capital Gains
The formula for calculating long-term capital gains is as follows:
Long-term capital gain is the final sale price less the sum of the indexed purchase, improvement, and transfer costs, where:
Cost of acquisition multiplied by the cost inflation index of the year of transfer/year of acquisition equals the indexed cost of acquisition.
Indexed cost of improvement is calculated by multiplying the improvement cost by the cost inflation ratio of the transfer and improvement years.
To better comprehend the computations for long-term capital gains, let’s use an example
Let’s say Mr. Gupta spent Rs. 15 lakhs on a piece of land in 2006. For private reasons, he sold the plot in 2016 for Rs. 40 lakhs.
Assume that the Cost Inflation Index (CII) is equal to 1024 divided by 480 for the financial year 2016–17 and the financial year 2006–2007, respectively.
Indexed cost of purchasing is calculated as follows: CII x purchasing Price (2.13 x 15,000 = 31.95)
Selling price – Indexed cost = 40,00,000 – 31,95,000 = Rs. 8,05,000 for long-term capital gain.
20% of Rs. 8,05,000 is the capital gains tax, or Rs. 1,61,000
The table below explains how long-term capital gains tax is calculated:
| Particulars | Amount |
| Gross Long Capital Gains | Rs 31,95,000 |
| Less: Indexed house improvement cost*cost index of 2006 (117)/cost index of FY 2016 (254) | No house improvement cost |
| Less: Any transfer expenses like brokerage, commission (if any) | Here no expenses were done |
| The sale price of the house | Rs 40,00,000 |
| Less: Indexed cost of purchase = Purchase price*cost index of 2006 (117)/cost index of FY 2016 (254) | Rs 31,95,000 |
| Net Sale Consideration | Rs 40,00,000 |
How to Use a Calculator for Capital Gains?
There are many online tools that can be used to calculate capital gains tax. To run the calculations, you must enter the information below: –
- The cost of the property’s sale
- The cost of purchasing the property
- Purchase date, including the month and year
- The sale’s day, month, and year.
- Information on investments made with capital gains, such as shares, debt funds, equity funds, gold, fixed maturity plans, etc.
After that, in order to determine capital gains for a financial year, you must give the following information: –
- Mutual funds, equities, bonds, cash & cash equivalents, Exchange Traded Funds (ETFs), and Fixed Deposits are all examples of investment vehicles.
- Gain category Long-term or short-term
- The year of purchase’s Cost Inflation Index (CII).
- The year of sale’s Cost Inflation Index (CII).
- Capital gain without indexation over the long term.
- Capital gain over the long-term using indexation.
- The price difference between buying and selling a property.
- The interval between the purchase price and selling of the property
- Bought-in index price
The Effect of Cost Inflation Index on Capital Gains
Due to inflation, money’s worth is always declining. The cost price of a property in India may be indexed to account for price increases brought on by inflation. Every financial year, the Reserve Bank of India updates the cost inflation index. The table below displays the Cost Inflation Index for the years 2001–2002:
| Financial Year | Cost Inflation Index |
| 2021-22 | 317 |
| 2020-21 | 301 |
| 2019-20 | 289 |
| 2018-19 | 280 |
| 2017-18 | 272 |
| 2016-17 | 264 |
| 2015-16 | 254 |
| 2014-15 | 240 |
| 2013-14 | 220 |
| 2012-13 | 20 |
| 2011-12 | 184 |
| 2010-11 | 167 |
| 2009-10 | 148 |
| 2008-09 | 137 |
| 2007-08 | 129 |
| 2006-07 | 122 |
| 2005-06 | 117 |
| 2004-05 | 113 |
| 2003-04 | 109 |
| 2002-03 | 105 |
| 2001-02 | 100 |
Are There Any Deductions to Lower Capital Gains Tax?
Nirmala Sitharaman, the finance minister, imposed a maximum of Rs. 10 crores for the long-term capital gain tax exemption in the Union Budget 2023. Under Sections 54 and 54F of the Income Tax Act, the deduction has been imposed for reinvestment in residential buildings.
The Income Tax Act permits asset owners to lower their capital gains tax. Let’s examine the following:
Section 54F: Your full capital gain tax will be excluded if you use 100% of the proceeds from selling a house or piece of land to build a new home. There are a few restrictions placed on it, though.
Section 54EC: The tax obligation may be diminished if Long Term Capital Gains from the sale of land are utilised to purchase Capital Gain Bonds. Additionally, you can take advantage of tax deductions by depositing such taxes in the bank under the Capital Gains Account Scheme. Within six months of selling the property, the money should be put in capital bonds, which offer annual interest rates of 5–6%. Capital bonds have a five-year lock-in period before being automatically redeemed.
Things to keep in mind
- Capital bonds cannot be sold or transferred to anyone in order to avoid paying capital gains tax.
- Bonds of capital are secure. They received a AAA grade from credit rating agencies like CRISIL.
- You can invest in NHAI or REC bonds, which are sold by banks.
- Capital Gains Deposit Scheme: Using the taxable amount to pay for a home or construction is another strategy to lower capital gains tax. But before submitting a tax return, it ought to be finished. The unused sum should be deposited with a bank under the Capital Gains Accounts Scheme if it is not done. You can temporarily relax and park capital gains safely for a while by investing in them. You are eligible for tax exemptions if you have parked your capital gains account at one of the recognized banks. The money must, however, stay in the bank for three years; otherwise, the deposit would be considered a capital gain, and the tax will need to be paid in the next fiscal year.
What is the bond capital gains tax?
Within six months of the sale of the property, people may invest in certain bonds, such as those issued by Rural Electrification Ltd. and the National Highway Authority of India, in accordance with Section 54EC of the IT Act. Capital gains cannot be redeemed before three years. The buyer of the bond receives a guaranteed interest rate. In a fiscal year, a person may invest up to Rs. 50 lakhs in capital gain bonds. Additionally, only long-term capital bonds are eligible for the benefit.
Case 1: Property Sale of a House
The following costs are subtracted from the overall sale price:
- Brokerage or commission fees are paid to locate the buyer.
- Stamp paper cost
- Expenses connected with travel and transfers.
- Expenses related to real estate inheritance, such as those incurred during the process of creating a will and succession certification. In some circumstances, it also includes the executor’s fees.
Case 2: Shares Are Sold
- What you need to know about share sale-related deductions is provided here.
- Brokerage fees associated with selling shares
- It is not possible to deduct the Securities Transaction Tax (STT) as a cost.
Impact of Capital Gains Tax on NRI
You will also be responsible for paying capital gains taxes if an NRI owns real estate in India. Tax is imposed in accordance with the two categories into which capital gains are divided. Short-term capital gains are those made on properties owned for less than two years; long-term capital gains are those made on properties held for more than two years.
- Short-term capital gains are subject to taxation under the NRI income tax slab rates, which are determined by the total income taxable in India.
- The tax rate on long-term capital gains is 20%.
- Buyers must withhold 20% tax deductible at source (TDS), which is enhanced to 30% in cases of long-term capital gains.
- Under Section 54, an NRI may be exempt from paying capital gains tax. If the capital gain is long-term, only then is the exemption available. Either one year before or two years after the sale of the older property, you must purchase the new property. In other words, it ought to be a transient capital gain. You might also invest that money in the construction of new homes. However, the construction project should be completed in three years.
How Can You Save Money on Capital Gains Taxes?
If you wish to evade paying capital gains tax, try some of the following:
- The transaction’s gains can be use to buy a new home without subjecting you to tax. You must, however, purchase a new residence before submitting your income tax return for that particular year.
- Additionally, you can place your long-term capital gains in three-year bonds issued by the National Highways Authority of India and the Rural Electrification Corporation Limited. Please take note that the maximum amount you can invest in these bonds in a fiscal year is Rs. 50 lakhs.
- You can still avoid paying tax on the capital gains even if you don’t immediately want to buy another piece of real estate. All you have to do to retain the money there for two to three years is deposit the proceeds in any public sector bank under the Capital proceeds Accounts Scheme (CGAS). To avoid having the money consider a capital gain and having to pay tax on it, you must invest the money in a property by the end of the time frame. If you choose to invest in a ready-made property, you have two years to complete the transaction; but, if you choose a property that is still under construction, you have three years.
- If the developer of the new property does not deliver the property within three years of the purchase, your tax will be exempt.
- To determine capital gains, stamp duty & registration fees are taken into account.
Note:
Investing in long-term equities can also help you avoid paying capital gains tax. Your tax obligation will be at its lowest if you purchase high-quality equities from successful companies and hold them for an extended period of time. Finding organisations that perform regularly and sticking with them for a long time is difficult, though. Due to the potential for long-term operating changes, you might eventually need to sell the share.
In addition, you can lower your capital gains tax by comparing your most recent capital losses to your capital gains. According to India’s income tax laws, anyone who has capital losses from earlier years may use those losses as a credit against their capital gains to reduce their tax liability. It must be emphasize that only long-term capital losses may be offset by long-term capital gains. The same holds true for short-term capital losses, which can only be offset by short-term capital gains. Additionally, the capital loss may be carried over for an additional eight years.
Implications of TDS
TDS must be withheld when purchasing a property that costs more than Rs. 50 lakhs. Subtract 1% of the property’s worth as TDS before paying the seller’s payment.
What Are Some Ways to Lower Capital Gain Tax on My House?
Simply by residing in your home for more than two years, you can easily lower the capital gain tax amount or avoid paying the same on it. All you need to do is keep track of every dollar you spend on renovations or home upgrades. You can deduct the cost of these improvements from the price of your home, which will help you lower your overall taxable capital gain amount.
Tax on Agricultural Land’s Capital Gains
Agribusiness profits from sales of land can either be completely exempt from taxation or subject to capital gains taxation. Let’s examine the conditions under which the proceeds from the sale of agricultural land are taxed.
- According to the Income Tax Act, no income tax is assesses on the sale of agricultural land. Income from agricultural activities is any revenue derive from agricultural land.
- Agricultural land that is acquire and sold as stock-in-trade in the course of a business is taxable under the heading Business and Profession.
- According to Section 10(37) of the Income Tax Act, any capital gains from the government’s force acquisition for urbanization or any other reason are excluded.
If the land was not sold for any of the aforemention reasons, one may also make a claim for an exemption under Section 54B.
Conclusion: How to Calculate Property Capital Gains Tax?
The capital loss must have been highlight and stated in preceding years’ income tax returns. Getting money gains is now simple because to the market’s abundance of investing possibilities. Additionally, if you reinvest wisely, the capital gains tax might be decreases, resulting in significant savings.
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