Capital Gain Tax on Sale of Property (Long Term / Short Term)

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.

For detail read: Section 54B: Capital gain Exemption on sale of agricultural land

 

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.

For detail read: Section 54D Exemption in Capital Gain (Compulsory Acquisition)

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