CGT means “Capital Gains Tax”. The capital gains tax is a tax on individuals and corporations assets including stocks, bonds, real estate, and property. Two types of capital gains tax which is levied on long term and short term gains starts from 10% and 15%, respectively.
The capital gains tax in India, under Union Budget 2018, 10% tax is applicable on the LTCG on sale of listed securities above Rs.1lakh and the STCG are taxed at 15%. Besides this, the both long term and short term capital gains are taxable in case of debt mutual funds. The STCGs on debt MF are added to the income of the taxpayer and is taxed according to the individual’s IT slab rate, whereas, the LTCGs on debt MF is taxed at 20% with indexation and 10% without indexation. Indexation can be described as the adjustment of purchase value for inflation. In case of inflation, the indexation increases which result in increase of purchase cost and lower the gains.
According to the amendment to section 54, under budget 2019, if an individual earned capital gains up to Rs.2 crore on selling a house property then they can invest the amount in 2 house properties. However, this facility can only be availed once in a lifetime. The purchase should be made in 1-2 year of sale of property. If the seller wants to construct as new house with the capital gains earned then he/she should do it within 3 years of asset/property sale.
Capital gain refers to any gain or profit that is earned by the individual from the sale of a capital asset. The profit arises from the sale of the capital asset is taxed under the head of ‘Income from Capital Gain’. The profit is earned by selling the capital asset at a higher price than what it was bought for. Capital gains tax is not applicable to the inherited property, as there is an only transfer of ownership and no sale. Any asset which is received as a gift by way of will or inheritance is totally exempted from the Online Income Tax Act 1961. However, CGT will be applicable if the individual who inherits the asset decides to sell it.
The tax that is charged on the gains earned from the selling of capital asset is known as capital gains tax. The capital assets are generally categorized into two categories i.e. short-term capital asset and long-term capital asset.
Long-term capital assets are considered as an asset which is held by the taxpayers for a time period of more than 36 months before the transfer. In case the above-listed assets are held for a period of more than 12 months then they are considered as a long-term capital asset.
Short-term capital assets are considered as assets which are held by the taxpayers for a time period of 36 months or less from the date of its transfer. Some of the short-term capital assets are held 12 months or less. This is only applicable if the transfer date of asset is after 10th July 2014 (irrespective of the date of purchase). These assets are:
|Tax Type||Condition||Tax Applicable|
|Long-term capital gains tax||Except on sale of equity oriented fund units/ equity shares||20%|
|Long-term capital gains tax||on sale of equity oriented fund units/ equity shares||10% over and above Rs.1,00,000|
|Short-Term capital gains tax||When securities transaction tax is not applicable||The STCGT is added to the ITR of the taxpayer and the individual is taxed as per his income tax slab.|
|Short-Term capital gains tax||When securities transaction tax is applicable||15%|
Capital gains tax are computed differently for assets held for shorter period and for assets held for longer period.
Step1- The assesse should start with the full value of consideration accruing or received.
Step2- Deduct the indexed cost of acquisition + indexed cost of transfer + indexed cost of improvement
Step1- The assesse should start with the full value of consideration.
Step2- Deduct the cost of acquisition + cost of transfer + cost of improvement
Step3- The final amount will be short-term capital gain.
Short-term capital gain= FVC-(Cost of acquisition + cost of transfer + cost of improvement)
One can make use of capital gain income tax computation in a very simple and hassle-free way in order to determine the capital gain that has been made on the sale. In order to calculate the capital gains tax the taxpayer will need to fill in the following details:
Once you fill all the details you will need to click the calculate capital gain button. Along with these details, the taxpayer will also require to provide the following details.
The long-term capital gains on stocks and equity mutual funds are taxed at 10% if the gains on the sale of listed securities exceed Rs.1 lakh (as per Union Budget 2018) and the short term gains are taxed at 15 percent. The STCGs on debt mutual fund is added to the taxpayer income and is taxed according to the individual’s income tax slab and the LTCGs on debt mutual funds is taxable at 20 % with indexation and 10 % without indexation.
Capital gains tax is chargeable on the profit earned from the selling of house property, however, the tax is not charged on the entire amount itself. In case, a person sells the property in the time period of three years then it will be taxed directly according to the income tax slab the person falls under and will be termed as a short-term capital gain. Short-term capital gain attracts a flat 20% tax.
Income tax exemption is applicable on the long-term gain which occurs from the sale of a capital asset under section 54 and 54F of IT Act if the investment is made in construction and purchase of house property, subject to specific conditions. In order to avail tax exemption, the individual should buy the residential house within the tenure of 2 years after or 1 year before the transfer of the original house. Any under construction properties should be completed in the time period of 3 years from the transfer date of the original house. It is important to keep in mind that the investment made on the house property should be situated in India.
The advance that is paid for the sale of the house property is taxed and it is later fortified by the person for sale of flat in case the transaction does not go through. Under the head of ‘income from other sources,’ the advance amount that is paid is taxed in the same year. At the time of determining the capital gains, the advance amount can be reduced from the acquisition cost of the asset in the year the capital asset is sold.
An individual can build or purchase a house from the capital gains in the time period of 2 years from selling the house property. Moreover, the individual can also book a flat and save on taxes with the capital gain. Besides this, the individual can also avail tax benefit by investing the capital gains in banks Capital Gains Account Schemes (CGAS). Apart from this one can also invest in specific bonds like National Highway Authority of India and Rural Electrification Ltd. within 6 months from the date of sale of the property.
However, capital gains tax on the property offers tax exemption, it is important to keep in mind that with one sale of property one can invest only in one new asset and cannot an investment in multiple assets to minimize the tax. In case, a person is selling more than one property then they can invest the accumulative capital gain amount in only one new property.
Under Section 54EC of IT Act, one can also invest in specific bonds like the National Highway Authority of India and Rural Electrification Ltd. within 6 months from the date of sale of the property. Capital gains cannot redeem before 3 years. The individual can earn a guaranteed rate of interest on the bond. During a financial year, one can invest up to maximum Rs.50,00,000 in capital gain bonds. This benefit is only available for long-term capital bonds.
In case of sale of House Property
Following expenses are deducted from the total sale price:
In the case of Sale of Shares
The following expenses can be deducted:
|Asset||Asset Duration||Tax Rate|
|Short Term||Long Term||Short Term||Long Term|
|Immovable Property like house||Less than 2 year||More than 2 year||IT Slab rate||20.6% with Indexation|
|Movable Property like Gold/Jewellery||Less than 3 year||More than 3 year||IT Slab rate||20.6% with Indexation|
|Listed Shares||Less than 1 year||More than 1 year||15.45%||Exempt|
|Equity Oriented Mutual Funds||Less than 1 year||More than 1 year||15.45%||Exempt|
|Debt Oriented Mutual Funds||Less than 3 year||More than 3 year||IT Slab rate||20.6% with Indexation|
Note: The above mentioned taxes does not consist of surcharge @10% on income between Rs.50,00,000 lakh to Rs.1 ,00,00,0000 and 15% on the income above Rs.1 crore.
The consideration to be received or received by the seller as a result of the transfer of the capital asset is known as full value consideration. Capital gains tax is taxable in the transfer year, even if the seller receives no consideration.
Cost of acquisition is the charge for which the sellers acquire the capital asset.
Any expenses that occur in making any alteration or additions to the capital asset by the sellers are known as the cost of the improvement. It is important to consider that the improvements made before 1st April 2001, is not taken into consideration.
When it comes to a new property, searching for a suitable seller, getting adequate funds and arranging the paperwork takes time. It’s a good thing that the Income Tax Department agrees with these limitations.
If capital gains earned have not been invested till the date of filing of income tax return (usually 31 July) of the financial year in which the property is sold, the gains can be deposited in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988. The deposited amount can then be claimed as a deduction from capital gains, and no tax is paid on it. However, in case the taxpayer does not invest the money, the deposit made by the taxpayer should be treated as STCGs in the year in which the specified period lapses.
According to the amendment made to Section 54, under budget 2019, the assesses can avail tax exemption by investing in long-term capital gains from the sale of up to two house property. Earlier, the provision of investment was limited up to 1 house property with the same conditions. However, the profit gains on the sale of house property should not exceed more than 2 crore.
Capital assets can be land, house property, building, trademark, vehicles, leasehold rights, machinery, patents, and jewelry. Any legal rights, as well as the rights of management and control, are also considered as capital rights. However, these are the things which are not included under the capital assets.