Capital gain is a kind of gain you are getting through the sale of the capital asset. The profit one is earning falls under the income category. Therefore, a tax needs to be paid on the income that is received. The capital gain might be long-term or short-term. Usually, it starts from 10% to 15% respectively.
According to Income Tax Act, Capital gain taxes in India is not applicable in scenarios where the individual is inheriting the property and there is no sale. In case, the individual is planning to sell off the property, in that scenario tax is applicable on the income that is generated from the sale. Some examples of Capital Assets are machinery, jewelry, house property, leasehold rights, patents, trademarks, house property, buildings, and land.
Long-Term Capital Assets : In case an individual is holding the asset for more than 36 months, the asset is considered a long-term asset like jewelry or any mutual funds, zero coupon bonds, equity-based mutual funds, securities, or any kind of preference shares.
Short-Term Capital Assets : Assets an individual held for a maximum of 36 months or less, can be defined as Short Term Capital Assets. For immovable properties, the duration has been reduced to 24 months. So, if an individual wish to sell land or a house after 24 months, the profit earned from the property is counted as a capital gain. If the property has been inherited or given as a gift, the amount of time the property was held by the previous owner is also considered a short-term capital asset or a long-term capital asset.
Based on the amount of time the asset has been helping, capital gain tax calculation takes place. Certain points to keep in mind while calculating the capital gain tax are as follows:
For example : Property Cost- Rs 35 Lakh
Financial Year house was purchased: 2019-2020
Amount house was sold for: Rs.60 lakh
Inflation adjusted cost: (289/184) x 35 = 54.97 lakh
Long term Capital Gains: 60 lakh - 54.97 lakh = Rs.5,03,000 (approx.)
Firstly, an individual has to evaluate the full value of the property. Next, the below- mentioned points are to be deducted:
Given below is an example of how short-term Capital Gains are calculated:
For example : The house sold at a price Rs 55 Lakh for brokerage, commission, etc. The expenses incurred for brokerage commission is Rs 30,000. So, after expenses, amount spend for improvement of house is Rs 3 Lakh. Gross Short-term Capital gain is Rs 16,70, 000. Tax exemptions under this section 54, 54B, 54D, 54EC, 54ED, 54F,& 54G are allowed.