What is Capital Gain?
A capital gain is simply the profit or loss from the sale of a capital asset. You will have long-term capital and short-term capital gain if you sell a Short term capital asset. If the sale results in a loss, you will incur a capital loss. The Capital Gain will be taxable in the year when the capital assets become available.
Capital Gains Tax on the Sale of Real Estate
Capital gains can be of two types, depending on how long the capital asset remains in use.
- Long-Term Capital Gain (LTGG) or Long-Term Capital Loss (LTCL): If a taxpayer sells an immovable property or land held for more than 24 months, the gain or loss on such sales is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).
- Short-Term Capital Gain (STCG): A Short-Term Capital GAIN (STCG) or Short-Term Capital Loss (STCL) is a gain or loss on the sale of immovable property or land held for up to 24 months by the taxpayer.
According to the Income Tax Act, movable property or land is a capital asset. When a taxpayer sells an immovable property or land, the income or loss is reported as Capital Gains in the Income Tax Return and taxed at the applicable rate. The nature of the capital gain determines the capital gain tax on the sale of property or land, whether long-term or short-term. While the STCG on the sale of immovable property is taxable at slab rates, the LTCG is taxable at 20% with indexation benefit under Section 112 of the Income Tax Act.
Income Tax on the Sale of Land Sale
The tax treatment of immovable property, such as land, buildings, or houses, is similar to that of other capital assets.
Calculation of Long-Term Gain Tax on Property Sales in India
LTCG on the sale of immovable property in India is taxable at 20% with an indexation benefit, according to Section 112 of the Income Tax Act. To take advantage of the indexation benefit, the taxpayer can compute the long-term capital gain by calculating the indexed cost of the acquisition using the Cost Inflation Index (CII). The taxpayer’s cost of improvement is the expense incurred for adding or improving the capital asset. Using CII, the taxpayer can also calculate the Indexed Cost of Improvement.
| Particulars | Amount |
| Sales Consideration | |
| Less | Transfer Expenses |
| Less | Indexed Cost of Acquisition |
| Less | Indexed Cost of Improvement |
| Less | Exemption u/s 54 to 54 GB |
| Long-Term Capital Gain |
- Sale Consideration = In the case of immovable property, the sale consideration should be the offer value of the capital asset or the value adopted by the stamp duty valuation authority to Section 50C of the Income Tax Act.
- Transfer expenses are expenses incurred solely to sell a capital asset.
- Cost of Acquisition = (CII of the year of Sale/ CII of the year of Purchase) = Indexed Cost of Acquisition
- Cost of Improvement = (CII of the year of Sale/ CII of the year of Improvement) = Indexed Cost of Improvement
- Capital Gain Exemption = Taxpayers who meet the specified conditions can claim a capital exemption under Sections 54 to 54GB.
Calculation of Short-Term Capital Gain tax on the sale of Property in India
The short-term capital gain on the sale of real estate is taxable at the slab rates. There is no indexation benefit in the case of a Short capital gain.
Capital gain exemptions, also through Sections 54 to 54 GB, aren’t enough. As a result, the Capital Gain calculation of the acquisition, improvement, and transfer costs