Capital gains tax is a tax that is payable in India as per the Union Budget 2018, 10 percent tax applies to the LTCG when selling listed securities over Rs.1lakh as well as the STCG is taxed 15 percent. Additionally, both short and long-term capital gains are tax-deductible in the the case of debt mutual funds. The STCGs on debt MFs are added to the earnings of the taxpayer and are taxed according to an tax slab of the individual’s IT slab rate. In contrast the LTCGs from debt MFs are assessed at 20% after indexation, and 10% without indexation. Indexation is the adjustment of the purchase price to reflect inflation. If inflation occurs, it is a case of increasing indexation, which increases purchase costs and more minor gains.
As per the amendments to section 54 in the budget 2019, if a person made capital gains exceeding Rs.2 crore when selling the house, they can put the money in two house properties. This facility, however, is only available once during the course of a lifetime. must complete the puchase within the first two years of selling the property. If the seller wishes to build a brand new home by utilizing the capital gains, then it should be done within three years from the date of asset sale.
What is Capital Gains Tax (CGT)?
Capital gain is any profit or gain which the individual earns through the sale of an asset that is capitalized. The gain resulting through the sales of capital assets and is taxed under the heading “Income generated by Capital Gain’. Profit is earned by selling the asset at more than the amount purchased. Capital gains tax doesn’t apply to the inherited property because there is sole transfer of ownership, and there is no sale. Anything that is given as a gift of inheritance or will is completely exempt by taxation under the Online Income Tax Act 1961. But, CGT applies when the person who receives an asset chooses to dispose of the asset.
Types of Capital Gains Tax
The tax that is imposed on gains derived from the sale of capital assets is called capital gains tax. Capital assets are typically classified into two types i.e., short-term capital asset and long-term capital asset.
Long-term Capital Asset
Long-term capital assets are regarded as an asset held by taxpayer for a greater than 36 months before transfer. If the assets mentioned above have been held over a duration greater than 12 months, then they are considered to be an asset that is long-term in nature.
Short-term Capital Asset
Short-term capital assets are regarded as assets that the taxpayer holds for a duration of a minimum 36 months as of the date of the transfer. Taxpayers hold for certain capital assets that are short-term for less than 12 months. This is only valid if the date of transfer for the asset occurs after the 10th of July, 2014 (irrespective of the day of the purchase). The assets include:
Equity shares owned by the company that is listed on a reputable stock exchange in India.
Securities like bonds, debentures, government securities, etc., are registered on a reputable trading exchange in India.
UTI units, which are units of equity-oriented mutual funds that are quoted or not.
Calculating Capital Gain
Capital gains tax is calculated differently for assets held for short periods and those held for a longer time.
How to Compute Long-term Capital Gains Tax?
Step 1 Step1 The assessor should begin with the total amount of the consideration received or accruing.
Step 2. Deduct the index cost of acquisition plus the cost of transfer that is indexed plus index cost of improvement
indexed acquisition cost equals cost of purchase x Cost of Inflation Index for the year of acquisition/cost of inflation index for the year of transfer.
Indexed cost of transfer =the brokerage fee paid for arranging legal costs, contracts and advertising costs, etc.
Indexed cost of improvement = price of improvements x cost of an inflation rate of improvement or cost inflation index for the year of transfer.
Lang-term capital gains = FVC that is accruing, and received-(Indexed costs of purchase x cost of transfer plus indexed expense of improving)
How to Compute Short-Term Capital Gains Tax?
Step 1The assessor should begin with the entire amount of the consideration.
Step 2 Take the amount of purchase minus the cost of transfer plus the cost of improvement
Step 3 Step3 The amount that is finalized is a short-term capital gain.
Short-term capital gain = FVC-(Cost of acquisition plus the cost of transfer and the cost for improvement)
Capital Gains Tax Calculator:
It is possible to use the capital gain tax calculation using a straightforward manner to calculate the capital gain realized from the sale. To determine the tax on capital gains, the taxpayer must complete the following information:
The number of units
The details of the purchase include the year, date and month that bought it.
Details of the sale, such as details about the month, year, and the date on which it was sold.
Investment detail. Taxpayers can put capital gains in shares, debt mutual funds, real estate equity mutual funds, fixed maturity plans, and gold.
Once you’ve filled in all the necessary information, you’ll need to hit the button that calculates capital gains. Alongside these details, the taxpayer must submit the following information.
Type of investment.
The period between purchase and the time of sale.
The type of capital gain is determined by whether it’s a short-term or longer-term capital gain.
Price difference between the purchase price and the sale price.
Cost index for inflation for the year of purchase.
Inflation cost index for the year of the sale.
Cost of purchasing index.
Variation between the index price of purchase and the sale.
LTCG with no indexation.
LTCG has an index.
The capital gains that accrue over time of equity mutual funds can be taxed up to 10% when the revenues earned from the sale of securities that are listed surpass Rs.1 lakh (as as per Union Budget 2018), and the gains from short-term transactions will be taxed 15 per cent. The STCGs on mutual funds with debt are added to the taxpayer’s income and taxed according to an tax slab of the individual’s income. the LTCGs of mutual funds with debt are taxed at 20% with indexation and 10% without indexation
Special Capital Gains Rates and Exceptions
Specific categories of assets are subject to different tax treatment for capital gains than the standard.
Gains from collectibles such as jewelry, antiques, or precious metals, and stamp collections are taxed at 28% regardless of income. Even if you’re in a lower rate than 28% or higher, your gains will still be charged at this greater tax rate. If you’re in a tax bracket that has higher rates that are, the tax on capital gains will be only a 28 percent tax rate. 1
Owner-Occupied Real Estate
Different rules apply to capital gains from real estate when selling your primary residence. It works for individuals: $250,000 of their capital gains from the sale of a house are exempt from taxation ($500,000 for married couples and filing jointly).
This is the case as the seller has resided in and owned the house for two consecutive years or more.
But, unlike other investment options, capital losses resulting from selling personal property like a house are not deductible in the same way as profits. 6
Here’s how to do it. A single taxpayer who buys the house for $200,000 and then sells the house for $500,000 made 300,000 profit from the sale. Following the application for the $250,000 exemption, the person must declare an income tax profit of $50. This is the sum that is subject to capital gains tax.
Most of the time, the cost of significant improvements and repairs to the house could be added to the charges, thereby reducing the number of capital gains.
Investment Real Estate
Real estate investors’ properties are frequently permitted to take deductions from their income for depreciation to reflect the constant decline of the property as it gets older. 7 (This is a decrease in the property’s condition and does not have any connection to its increasing value in the market for real estate.)
The depreciation deduction decreases the amount you’re believed to have paid to purchase the home in the beginning. This can, in turn, boost your capital gain taxable if you decide to sell the property. The reason is that the difference between the value of the property after deductions and the value at a sale will be higher.