Capital Gains tax in Real estate : Explained
Capital gains tax is the tax on the gain or profit arising from the sale of assets . Here the asset in consideration is property . Tax liability on capital gains depends on the holding period of the asset . There are two types of capital gains tax :
LONG TERM CAPITAL GAINS TAX (LTCG ) :
If you sell a property two years after the date of its acquisition then profit arising will be termed as LTCG . The tax levyied will be 20.8 % with indexation . It is calculated as follows :
Long Term Capital Gain = Sale consideration –Indexed cost of acquisition- Indexed cost of improvement (if any)-Expenses incurred exclusively for the sale of the Asset.
Indexed cost is taken here to adjust for inflation . It is calculated as follows :
Indexed Cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year of sale / CII of the year in which the property was first held or FY 2001-2002, whichever is later.
SHORT TERM CAPITAL GAINS TAX ( STCG ) :
If you sell a property within two years of the date of its acquisition , Then the profit or gain arising will come under the ambit of Short term capital gains tax . The tax levyied will be according to your income tax slab rate . If you fall in the 20 % tax bracket then STCG will also be 20 % .
It is calculated as follows :
Short Term Capital Gain = Sale Consideration – Cost of acquisition- Cost of improvement (if any) – Expenses incurred exclusively for the sale of the Asset.
The key difference is that the benefit of indexation is not available in case of STCG as compared to LTCG .
