Capital Gain Tax In India

Selling your property or selling your shares, what is the thing that bothers you the most ?? Indeed, the impact of tax on profits !! Capital Gain Taxes in India are taxed on the profits made by selling capital goods. This tax area has always been vague in the minds of ordinary users. We are often faced with questions that build up our family and friends, such as, Does a high income tax apply to all? How to calculate the maximum profit? Where is it displayed during the e-Return Tax Return? What is indexation? and so on… Looking at the complexity of the content and how important it is. We bring you a complete understanding of financial value, capital assets, accounting, CII and much more in a clear and complete way.

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1. What is a capital gain?

Big profits are nothing but the profits you make when you sell big goods. If you sell a capital asset at a higher price than you are earning, you are making a profit. This benefit is called capital gain which is your income. This income is taxable and a tax calculated on the benefit of the so-called capital gains tax or capital gains tax. To understand the great benefits, you need to understand the concept of capital assets

2. So, What are Capital Assets?

Major assets are any type of property which can be transferred] to you other than the following -

  • Stock of raw materials or immature items stored for use in business or work.
  • Personal belongings designed for personal use such as clothing, furniture, etc.
  • An piece of farmland in rural areas.
  • Special bonds, 6.5% gold bonds (1977), 7% gold bonds (1980) or national security gold bonds (1980) issued by the Central Government.
  • Gold Deposit Bond (1999) issued under the Gold Deposit Scheme or Deposit Certificate issued under the Gold Money Making Scheme, 2015 has been notified by the Central Government.

Apart from these assets, any other property you own will be called a major asset, such as land, property, shares, patents, trademarks, jewelry, etc.

3. Types of capital assets

Major goods are divided into two types based on the time at which they are sold. The types of capital assets are as follows -

4. Short term capital assets

Major short-term assets are those that are kept below or equal to 36 months. This means that if you sell the property within 36 months of purchase it will be called a temporary capital asset. However, in some cases, the holding period is reduced to 24 months and 12 months. These situations include the following -

  • If the property is immovable property such as land, building or house then the retention period will be considered 24 months. This means that if you sell an immovable property within 24 months of purchase, that property will be called a short-term financial asset.
  • Similarly, company equity shares listed on the Recognized stock exchange, securities listed on the Recognized stock exchange, UTI units, Equity oriented mutual fund units and zero coupon bonds with a holding period of 12 months. If these goods are sold within 12 months of purchase, they will be called larger short-term assets.

5. Long term capital assets

Long-term assets are the ones that are kept for more than 36 months and then sold. Immovable property sold after 24 months will be classified as a long-term asset. In the case of equity shares, securities, mutual fund units, etc., however, a 12-month holding period is applicable. If they are sold after 12 months, they will be called long-term assets.

6. Types of capital gains

Now that you have identified what are the major assets and their types, it is time to understand the types of major profits. Financial benefits are also divided into major short-term gains and long-term capital gains -

Short-term capital gains are the profit you make when you sell short-term financial assets and long-term profits are the profits you make when you sell long-term assets.

7. How capital gain is calculated? What is Full Value Consideration, Cost of acquisition and Cost of Improvement?

The calculation of maximum profit depends on the type of profit you earn. Short-term monetary profits are calculated differently than long-term. However, before calculating the different types of capital profits, you should understand the concept of total consideration, as it forms the basis for the calculation of maximum profit. The full amount of consideration, in simple terms, the money you will earn when you transfer your big property. In technical terms, the full value consideration consideration a seller has received or will receive when exchanging and transferring his or her main asset.

    Apart from considering the total value, other keywords include

  • Discharge costs once
  • Development costs.
  • Acquisition costs are the cost of an asset. The amount at which you purchase capital asset.

The cost of improving the amount spent on capital asset to improve it. Development costs are added to acquisition costs to calculate the maximum benefits. However, if the development costs are incurred before 1 April, 2001, they will not be added to the acquisition costs.

8. Now that the important principles have been understood, here is how to calculate the different types of profits -

Calculation of short term capital gains

Full value of consideration xxxxx
Less: expenses incurred on transferring the asset (xxxx)
Less: cost of acquisition (xxxx)
Less: cost of improvement (xxxx)
Short term capital gains xxxxx

9. Example –

The house was purchased on 1 January 2010 for INR 50 lakhs. On January 1, 2011, INR 5 lakhs were spent on housing development. On 1 November 2011, the property was sold for INR 65 lakhs. Since the house was sold 22 months after the purchase, it will be classified as a temporary asset. Profits from selling a home will be called short-term monetary profits and will be calculated as follows -

Full value of consideration INR 65 lakhs
Less: cost of acquisitionINR 50 lakhs
Less: cost of improvement INR 5 lakhs
Short term capital gainsINR 10 lakhs
Calculation of long term capital gains
Full value of consideration xxxxx
Less: expenses incurred in transferring the asset (xxxx)
Less: indexed cost of acquisition (xxxx)
Less: indexed cost of improvement (xxxx)
Less: expenses allowed to be deducted from full value of consideration (xxxx)
Less: exemptions available under Sections 54, 54EC, 54B and 54F etc (xxxx)
Long term capital gains xxxxx

In calculating long-term gains, there are three different concepts to understand

  • The specified cost of acquisition,
  • Specified costs for development and
  • Costs deducted from the total estimated value.

10. Indexation of cost

Cost identification is done to reduce inflation over the years in which the capital asset is managed by you. As inflation reduces inflation, identification of acquisition costs and development costs increases the value of these costs thereby reducing the profit margin. To calculate inflation, the Cost Inflation Index (CII) is used to calculate inflation that has occurred during the asset. To calculate the cost shown, using the following formula - Since the last budget (introduced February 1, 2018), the basic year of CII has changed from 1981 to 2001. That is why, when calculating the cost of acquisition, the CII of 2001-02 is considered if the asset was purchased before the 2001-02 financial year.

With the change of base year, the CII numbers have also changed. The CII for the various years, as determined by the Central Government, is as follows:

Financial year Cost Inflation Index (CII)
2001-02 100
2002-03 105
2003-04 109
2004-05 113
2005-06 117
2006-07 122
2007-08 129
2008-09 137
2009-10 148
2010-11 167
2011-12 184
2012-13 200
2013-14 220
2014-15 240
2015-16 254
2016-17 264
2017-18 272
2018-19 280

11. Capital Gain Tax in India

Now that you have addressed the calculation of short-term and long-term interest rates, it is time to realize the huge profit tax in India. Like short-term and long-term profits, high interest rates in India are also divided into short-term gains tax and long-term interest rates. Let's take a look at the tax rate of the biggest profits on these taxes in order -Short term capital gains tax (STCG tax)

Temporary capital gains taxable tax tax income if Securities Transaction Tax (STT) does not apply to profits. In such cases, the benefits are added to your taxable income and are taxed on the slab value where your income is due. If, however, in the case of equity allocation, STT is effective, provisional capital gains tax are taxed at a rate of 15%.

Long term capital gains tax (LTCG Tax)

Long-term capital gains taxable tax of 20% Although Although STCG and LTCG are taxable at the above rates, in the case of equity-related investments, tax rates and rules are different. Here's how equity investing and debt financing are taxable -

Type of fund STCG Tax LTCG Tax
Equity funds (which have 65% or more investments in equity) 15% 10% if the gain is more than INR 1 lakh in a financial year
Debt funds (which have 65% or more investments in debt) At the income tax slab rate 20% with the benefit of indexation

12. Capital Gain tax on sale of property

With the Interim Budget, 2019 announced on 1 Feb 2019, tax benefits on capital gains have been expanded. Extending the benefits the interim Minister of Finance Mr. Piyush Goyal has announced that a huge profit of Rs 2 Crore can now be invested in two apartments. this should be done instead of the existing investment provision that needs to be made single residential . But this option can only be found once in an investor's life. The value invested in these two houses will not attract long-term interest rates. Long-term capital gains are currently required to be invested in the purchase of residential property for the next two years or in building a house for the next 3 years or to invest in bonds / s 54EC within 6 months to exempt the maximum income tax. However, from the 2019-20 financial year (2020-2021 inspection year) the taxpayer will be eligible to apply this new investment plan in two residences at one time in life to the benefit of Rs 2 crore. Therefore, understand what the benefits of capital are, when they are made, their types and how they are taxed when you file your income tax return . To complete your taxes or get the best tax planning done, Contact Us Now !!

Frequently Asked Questions

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What DDT means?

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DDT or Dividend Distribution Tax is required to be paid to companies for the dividends they issue. According to the 2020 Budget Statement, no Distribution Tax (DDT) will be levied on Companies from FY 2020-21.


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What is the DDT full form in tax?

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DDT refers to the Distribution Tax that companies have to pay to distribute shares.


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Do I have to pay capital gains tax if my total income is less than 2.5 Lakh?

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If the proceeds of the assessment which includes the maximum benefits are below the basic exemption limit no tax is collected.


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What are the best ways to avoid capital gain tax?

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There are various ways to avoid capital gains by investing the amount of profits in government investment programs and other methods outlined by CBDT.


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Is advance tax paid on Capital Gain & Casual Income? If yes, then how would the amount would be calculated?

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Advance Tax should be paid on income and temporary income. Value is calculated by adding income and total income and taxes are calculated.


CEO Krishna Gopal

Krishna Gopal Varshney is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Myitronline.com. Myitronline is amongst the top emerging startups of Asia and authorized ERI by the Income Tax Department. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. ”

Krishna Gopal Varshney
Co-founder & CEO