Manner of computation of capital gain

Determining the capital gains is the most important thing, as tax is levied on the capital gains earned on the sale of the asset and not on the entire sale proceeds. And tax is payable in the year in which the asset is sold.

Explanation of the terms used

Cost of acquisition means the purchase price of the property. It includes any incidental expenses incurred at the time of purchase of property like property registration fees, stamp duty, brokerage paid on purchase, etc. Cost of improvement means any amount spent on the property after it has been purchased, which increases the value of the property, e.g., renovation Expenses on transfer mean the brokerage or any other ancillary expenses incurred at the time of sale of property

Computation of long-term capital gains

Long-term capital gains are computed in the same manner as short-term capital gains, except for the fact that in the case of long-term capital gains, we also index the cost of improvement as well as the cost of acquisition. Indexing of values basically means adjusting the historical cost of an asset with the inflation rates. The updated values for indexation are released every year by the government, and the chart in which these values are mentioned is called the cost inflation index.

Explanation of the terms used

Indexed Cost of Acquisition = Cost of Acquisition x Cost Inflation Index of Year of Sale/Cost Inflation Index of Year of Purchase Indexed Cost of Improvement = Cost of Improvement x Cost Inflation Index of Year of Sale/Cost Inflation Index of Year of Purchase For example, Mr A purchased a property in 2012 for Rs 60 lakh and is now selling this property in 2022. The cost inflation index for 2012 is 200, and that of 2022 is 331. In this case, the purchase price of Rs. 60 Lakhs will become the Cost of Acquisition and the Cost Inflation Index of 2022 is given to us as 331, and the Cost Inflation Index of 2012 is given to us as 200. Therefore, the Indexed Cost of Acquisition becomes: - Cost of Acquisition x Cost Inflation Index of Year of Sale Cost Inflation Index of Year of Purchase = 60 lakh x 331 200 = 99.30 lakh

Exemption from long-term capital gains

Capital gains exemption can also be claimed if the amount is reinvested in purchasing a residential house property or purchasing capital gain bonds. Do note that this exemption can only be claimed from long-term capital gains and not from short-term capital gains.

TDS on sale of property

If the value of the property sold is equal to or more than Rs 50 lakh, the buyer of the property is also required to deduct TDS @ 1%. At the time of making the payment to the seller, the buyer will deduct 1% TDS and will deposit the same to the government, and the balance will be paid to the seller. For example, if Mr A is purchasing a property from Mr B for Rs 50 lakh, he will deduct 1% TDS, i.e., Rs 50,000 and deposit this Rs 50,000 to the Income Tax Department and pay the balance of Rs 49.50 lakh to the seller. The seller would be entitled to claim a credit of Rs 50,000 deducted while filing his taxes. Note that TDS is to be deducted when the property value is more than Rs 50 lakh and not when the amount received per person is more than Rs 50 lakh. So, if Mr A and Mr B jointly own a property which they are selling for Rs 60 lakh, Mr A’s share would be Rs 30 lakh and Mr B’s share would be Rs 30 lakh. Although the share of each person is less than Rs 50 lakh, TDS @1% would still be required to be deducted as the property value is more than Rs 50 lakh. The property sale is the only asset sale on which TDS is deducted. TDS is not required to be deducted on the sale of any other asset except property.

Taxation on sale of physical assets in India: All you should know about capital gains tax, holding period

Date : 16/11/2022
Read: 6 mins

Tax is levied on the capital gains earned on the sale of an asset and not on the entire sale proceeds. The tax is payable in the year in which the asset is sold. Tax on the sale of physical assets, like property, gold, etc., in India is levied in the year in which the asset is sold and is levied depending on whether these assets were long-term or short-term in nature. The nature of the gain is determined in the following manner: In both the above scenarios, if the capital gain is long-term in nature, the rate of tax would be 20% of the net capital gain; and if the capital gain is short-term in nature, the tax would be levied on the net capital gain as per the income tax slab of the individual. Also Read: Best Physical Assets To Invest In As Per Their Liquidity Manner of computa...

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Taxation on sale of physical assets in India: All you should know about capital gains tax, holding period

Do you own property, jewellery and other physical assets? Know how taxes are levied on sale of physical assets

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