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Capital gain tax on sale of property shares gold

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.

What is Capital Gains?

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:

  • Long – term Capital Gain
  • Short – term Capital Gain

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.

  • Land
  • Building
  • House
  • Vehicles
  • Patent
  • Trademark
  • Gold
  • Jewellery
  • Shares
  • Machinery

Thus, profits or gains received from selling of these capital assets shall attract capital gain tax.

What is Long term Capital Gain?

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:

ParticularsAmount
Sale price of the PropertyXXXX
Less: Expenses incurred exclusively for transfer of property namely brokerage, commission etcXXXX
Net Sale ConsiderationXXXX
Less: Indexed cost of acquisitionXXXX
Less: Indexed cost of improvementXXXX
Gross Long – term Capital GainXXXX
Less: Exemption under section 54, if anyXXXX
Net Long – term Capital GainXXXX

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:

  • Long - Term Capital Gain is currently taxed at 20%
  • You can adjust or deduct the amount paid towards brokerage or commission for sale of property
  • You can deduct any expenditure incurred on construction and home improvement
  • Similar to the indexation benefit, any house improvement expenditure can be adjusted as per the Cost Inflation Index
  • You can reduce or exempt long - term capital gains under Section 54 i.e. by re-investing the net long-term capital gain in buying new residential property, or by purchasing capital gains bonds issued by REC, NHAI or other public undertaking

What is Short term Capital Gain?

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:

ParticularsAmount
Sale price of the PropertyXXXX
Less: Expenses incurred exclusively for transfer of property namely brokerage, commission etcXXXX
Net Sale ConsiderationXXXX
Less: Purchase Price of the PropertyXXXX
Less: Home improvement costXXXX
Gross Short – term Capital GainXXXX
Less: exemptions applicable under sec 54, if anyXXXX
Net Short-Term Capital GainXXXX
Short Term Capital Gain Tax as per the applicable income tax slab rateXXXX

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:

  • You can adjust or reduce the amount paid towards brokerage or commission for sale of property
  • You can adjust or deduct the amount spent towards home improvement or construction
  • Benefit of indexation is not allowed under short term capital gain
  • No exemption or savings is allowed on short term capital gain tax u/s 54 i.e. by re-investment in property or buying capital gains bond issued by REC or NHAI

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.

Tax on Shares: short term, long term and calculation

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:

  • Period of holding the asset
  • The nature of instrument
  • Securities transaction tax paid on sale of instrument

Thus, the following table illustrates the tax liability arising out of sale of shares, equity oriented mutual funds and debt oriented mutual funds.

ParticularsLong-term Capital Gain taxShort-Term Capital Gain tax
Securities transaction tax paid on sale of recognized shares and mutual fundNIL – 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 securities10% for a minimum holding period for securities is above 12 monthsAs 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 paid20% for a minimum holding period of securities is above 36 monthsAs per marginal tax rate i.e. 5% to 30% + 3% cess + surcharge if applicable
Debt oriented mutual funds20% with indexation or 10% without indexation; whichever is lower. The minimum holding period of securities is more than 36 monthsAs per marginal tax rate i.e. 5% to 30% + 3% cess + surcharge if applicable

Tax Rate Chart for Income on Sale of Assets

Type of AssetHolding 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 PropertyBelow 24 monthsMore than 24 MonthsAs per income tax slab rate20.6% with cost indexation
Movable property like Gold, Gold Jewellery, Below 36 monthsMore than 36 MonthsAs per income tax slab rate20.6% with cost indexation
Listed SharesBelow 12 monthsMore than 12 Months15.45 percentExempted
Equity oriented Mutual Fund SchemeBelow 12 monthsMore than 12 Months15.45 percentExempted
Debt Oriented Mutual Fund SchemeBelow 36 monthsMore than 36 MonthsAs per income tax slab rate20.6% with cost indexation

Tax on gold bars, gold coins, gold ETF's

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 TaxHolding PeriodTax Rate LeviedHead 4
Short-term capital gain taxHolding period for less than 36 monthsAs per the income tax slab rate applicable to the tax – payerNot applicable
Long-term Capital Gain TaxHolding period for more than or equivalent to 36 months20 percent alongwith indexation benefitExemptions 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.

Frequently Asked Questions

I am holding listed equity shares since December 2018 and I want to sell them. Which tax will I attract on sell of these securities?

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

What is the current long – term capital gain tax on sale of property?

Currently, the long-term capital gain tax on sale of property is charged at 20%.

Is Capital Gain Tax on sale of property applicable to Non-Resident Indians?

Yes, Capital Gain Tax on sale of property is applicable to Non-Resident Indians, if the property is situated in India.

Is cost of indexation benefit applicable on short-term capital gain?

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.

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