Every individual is an owner of certain type of asset. It could be property, shares, gold, jewellery or any other type. Every Individual invests in these assets for safeguarding their future financial needs as these assets can be utilized for resolving financial needs. Selling off these assets namely land, house, shares, or gold can fetch good capital appreciation and the benefit received from selling these assets can be utilized for fulfilling financial needs or to overcome financial emergencies. But not many of us are aware of the tax implications arising from the selling of these assets. The tax implication for each of these 3 class of assets namely Property, Shares and Gold are different. Also, the tax liability payable by the investor on sale of these assets depends upon the time period for which these assets were held by the investor. The calculation of tax liability arising out of selling of these assets is calculated under capital gains. This article is a complete guide for understanding the capital gain and the calculation of capital gain tax on sale of property, Shares and Gold.
Capital Gain is the gain arising out of selling of capital asset. The gain earned out of the sale of any such capital asset is treated as an income and so the amount is added to the gross income of the taxpayer. So, when the gain or profit is added to the income, the taxpayer will be obliged to pay tax on it. The tax is to be paid in the year in which the transfer transaction of capital asset is undertaken. This is called capital gains. Capital Gains is of two types namely:
Kindly note that capital gain tax is not applicable on assets received by way of inheritance i.e. properties owned by grand-father passed on to you, because it is merely transfer of ownership. Similarly, income tax exempts assets that are received as gifts by way of will. However, if the taxpayer sells the properties received by way of inheritance, will or gift, then capital gains tax shall be levied by the income tax department.
As we know, capital gain tax is levied upon capital assets, the following are few popular examples of capital assets.
Thus, profits or gains received from selling of these capital assets shall attract capital gain tax.
Long Term Capital Gain is the profit or gain received after selling of capital asset that the taxpayer held for a longer duration. In case of property, when you sell a property owned by you for more than 2 years, any profit arising out of the sale of such property is termed as long-term capital gain. The long – term capital gain is derived by calculating the difference between Net Sale Consideration received and Indexed Cost of the Property. The indexed cost of property is considered in order to set off the loss arising out of the inflation that impacted the gains received from the sale of property. The indexation cost of property is considered, so that the Long – term capital gain tax is charged only on the actual gains.
Let us understand the calculation of Long – term Capital Gain Tax on sale of property:
| Particulars | Amount |
|---|---|
| Sale price of the Property | XXXX |
| Less: Expenses incurred exclusively for transfer of property namely brokerage, commission etc | XXXX |
| Net Sale Consideration | XXXX |
| Less: Indexed cost of acquisition | XXXX |
| Less: Indexed cost of improvement | XXXX |
| Gross Long – term Capital Gain | XXXX |
| Less: Exemption under section 54, if any | XXXX |
| Net Long – term Capital Gain | XXXX |
In this manner, you can calculate the capital gain tax on sale of property. Following are some Key points to remember while calculating capital gain tax on sale of property:
Short – term capital gain is the profit or gain received from selling of property that was held for a period less than 24 months. So, if you are selling a property that you held for less than 24 months, then you are liable to pay short term capital gain tax as per the marginal income tax slab rate applicable to you.
Let us understand the calculation of Short – term Capital Gain Tax on sale of property:
| Particulars | Amount |
|---|---|
| Sale price of the Property | XXXX |
| Less: Expenses incurred exclusively for transfer of property namely brokerage, commission etc | XXXX |
| Net Sale Consideration | XXXX |
| Less: Purchase Price of the Property | XXXX |
| Less: Home improvement cost | XXXX |
| Gross Short – term Capital Gain | XXXX |
| Less: exemptions applicable under sec 54, if any | XXXX |
| Net Short-Term Capital Gain | XXXX |
| Short Term Capital Gain Tax as per the applicable income tax slab rate | XXXX |
In this manner, you can calculate the short – term capital gain tax on sale of property. Following are some Key points to remember while calculating short - term capital gain tax on sale of property:
Kindly note, that the tax liability under Short-Term Capital Gains can be high; so if you fall in the higher income tax slab rate, it is recommended that hold the property for more than 24 months and shift the tax liability under long-term capital gains.
Long-term capital gain tax of 10 percent is being introduced in the union budget of 2018-2019. So, any gains earned above Rs. 1 Lakh on sale of equity shares that were held for more than 12 months will be charged at 10%. The capital gain tax to be calculated on sell of shares, equity and debt mutual fund are based on following 3 factors:
Thus, the following table illustrates the tax liability arising out of sale of shares, equity oriented mutual funds and debt oriented mutual funds.
| Particulars | Long-term Capital Gain tax | Short-Term Capital Gain tax |
|---|---|---|
| Securities transaction tax paid on sale of recognized shares and mutual fund | NIL – for gains up to Rs. 1 Lakh 10% - for gains above Rs. 1 Lakh (Kindly note, Long term capital gain tax is charged on sale of shares and mutual funds held for more than 12 months) | 15% if the instruments are held for less than 12 months |
| Securities Transaction Tax not paid on sale of bonds, debentures, shares and other listed securities | 10% for a minimum holding period for securities is above 12 months | As per marginal tax rate i.e. 5% to 30% + 3% cess + surcharge if applicable |
| For assets other than shares and mutual funds on which securities transaction tax is paid | 20% for a minimum holding period of securities is above 36 months | As per marginal tax rate i.e. 5% to 30% + 3% cess + surcharge if applicable |
| Debt oriented mutual funds | 20% with indexation or 10% without indexation; whichever is lower. The minimum holding period of securities is more than 36 months | As per marginal tax rate i.e. 5% to 30% + 3% cess + surcharge if applicable |
| Type of Asset | Holding period of the Asset (Short-Term) | Holding period of the Asset (Long-Term) | Tax Rate applicable (Short-Term) | Tax Rate applicable (Long-Term) |
|---|---|---|---|---|
| Immovable property like Land, Building, House Property | Below 24 months | More than 24 Months | As per income tax slab rate | 20.6% with cost indexation |
| Movable property like Gold, Gold Jewellery, | Below 36 months | More than 36 Months | As per income tax slab rate | 20.6% with cost indexation |
| Listed Shares | Below 12 months | More than 12 Months | 15.45 percent | Exempted |
| Equity oriented Mutual Fund Scheme | Below 12 months | More than 12 Months | 15.45 percent | Exempted |
| Debt Oriented Mutual Fund Scheme | Below 36 months | More than 36 Months | As per income tax slab rate | 20.6% with cost indexation |
Income tax department has levied certain tax on the gains earned out of sale of gold in forms of gold bar, gold coins, gold exchange traded funds etc. The gains or profit earned from sale of gold will attract capital gains tax. Following table illustrates the tax rate applicable on the sale of gold, gold bars, gold coins, gold ETFs etc.
| Type of Tax | Holding Period | Tax Rate Levied | Head 4 |
|---|---|---|---|
| Short-term capital gain tax | Holding period for less than 36 months | As per the income tax slab rate applicable to the tax – payer | Not applicable |
| Long-term Capital Gain Tax | Holding period for more than or equivalent to 36 months | 20 percent alongwith indexation benefit | Exemptions under Section 54 available if the proceeds are re-invested in purchasing of bonds of NHAI, REC, NHB or other public sector undertaking or the proceeds are reinvested in purchase of residential property |
In this manner, the income tax department charges capital gain tax on various capital assets. We have seen the tax implications on the sale of capital assets like property, shares and gold in the table above. Assessee / investors and tax – payers are advised to check the tax liability arising out of sale of capital assets.
Ans: Any listed securities that are sold before completion of 12 months from the date of purchase will attract short term capital gain. While if you hold these shares for more than 12 months, the listed equity shares will be considered as long – term capital asset and will attract long -term capital gain.
Ans: Currently, the long-term capital gain tax on sale of property is charged at 20%.
Ans: Yes, Capital Gain Tax on sale of property is applicable to Non-Resident Indians, if the property is situated in India.
Ans: No, the benefit of indexation is not applicable for sale of property, if the property is held for less than 24 months i.e. on short-term capital gain.
