Most assets in India are subject to capital gains tax and property is no exception. Here’s help on how to calculate capital gains for your property.
We all love buying assets. These include property, gold, stocks, debentures and Mutual Funds. If you sell these assets for a price that is higher than the price at which you purchased them, you incur a gain. This is called a capital gain. In simple words, the gain or profit that you make when you sell any asset is termed as a capital gain. Since this is not a recurring income (such as your salary), the taxation is different. Here, we try to help you understand how capital gains have to be calculated and how taxation of these gains works.
What is a capital gain?
As mentioned earlier, a capital gain is the difference between what you paid while purchasing an asset and what you received upon selling the asset. Any profit or gain that comes out of sale or transfer of a capital asset will be a capital gain. Capital assets include gold, shares, Mutual Funds, property, among others. Here, we will be dealing with capital gains related to the buying and selling of property.
Capital gains are of two types. One is Short Term Capital Gain (STCG) and the other is Long Term Capital Gain (LTCG). The amount of time you hold the asset for, will determine whether the capital gain you incur is short-term or long-term.
How to calculate STCG
If you sell the property within three years of purchasing it, it will be subject to STCG tax. Here’s the formula for STCG.
STCG =Sale price of the property – (cost of purchase of property + cost of improvement of property + any other expenditure incurred on sale or transfer)
How to calculate LTCG
If you sell a property after holding it for more than three years, then it becomes a long-term asset and LTCG will apply.
Gross LTCG =Sale price of property – (indexed cost of property when it was purchased + indexed cost of improvement of property + any other expenditure incurred on sale or transfer)
Net gains =Gross LTCG – Exemption (if availed) u/s 54 or 54EC or 54F
Additional Reading: How To Reduce Your Existing Home Loan Rate
Concept of indexation for LTCG
You must understand that when calculating LTCG you must take into account the indexed cost of acquisition of the property and not the actual cost of acquisition. This is because the value of money changes over time. The price you paid for the property years ago might actually be worth much more as inflation tends to inflate prices over time. Don’t understand? Let us explain.
Inflation in the country reduces the purchasing power of your money as years go by. For example, you could buy a movie ticket with Rs. 50 a decade ago. Today, you can’t even get a softie cone at a multiplex at that price. That is why you need to find out what price you would have actually paid for the property if you had purchased it today.
Now, how to find the indexed cost of your property? The answer: you have to use the Cost Inflation Index (CII) to do that. This index will give you an idea of how costs have become inflated over time. The central government of India notifies the value of this index every year. The base year for the index is 1981-82. So, the index started at 100 at that point in time.
Here are the CII index figures for the last 10 years:
Cost of Inflation Index (CII)
|2016 – 17||1125|
|2015 – 16||1081|
|2014 – 15||1024|
|2013 – 14||939|
|2012 – 13||852|
|2011 – 12||785|
|2010 – 11||711|
|2009 – 10||632|
|2008 – 09||582|
|2007 – 08||551|
How does indexation actually work?
Here is the formula to calculate the indexed cost of acquiring your property.
Indexed cost price =Purchase price of property * (CII for present year / CII for year of purchase)
Once, you get the indexed cost price, you need to deduct this from the actual sale price of the property to get the actual LTCG.
Additional Reading: How Is A Land Loan Different From A Home Loan?
Here’s an example. Suppose, you purchased a property in 2007 for Rs.40,00,000 which you sold in 2011 for Rs.80,00,000. What will be the actual profits you made on this sale?
|Cost of property purchase – 2007||40,00,000|
|Sale price of property – 2011||80,00,000|
|CII – 2007||551|
|CII – 2011||785|
|Indexed Cost Price||40,00,000 * (785/551) =Rs.56,98,729|
|Long-Term Capital gain||80,00,000 – 56,98,729 =Rs.23,01,270|
So, your actual gain after selling the property is not Rs. 40,00,000. It is only Rs. 23,01,270. This is the amount you should consider to calculate your taxes.
Long term & short term capital gains tax
As per the tax laws, you are liable to pay tax when you sell an asset for a profit and this includes property. The tax rate will depend on whether it was LTCG or STCG.
Tax on STCG
When you incur STCG, it will be taxed just like your regular income. This means that the gains will be added to your total income for the year and taxed as per the tax slab that applies to you. For example, suppose your total taxable income for the year exceeds Rs. 10,00,000 (after including the gains you have made), you will have to pay tax at the rate of 30%. Here is the tax slab for Financial Year 2017-18.
|Income Slab||Tax Rate|
|Income up to Rs 2,50,000||No Tax|
|Income from Rs 2,50,000 – Rs 5,00,000||5%|
|Income from Rs 5,00,000 – 10,00,000||20%|
|Income more than Rs 10,00,000||30%|
Additional Reading: Fixed Or Floating Rate: Which Is Ideal For Your Home Loan Now?
Tax on LTCG
Earlier, you could calculate capital gains tax without indexation. However, in the Union Budget FY 2014-15, this taxation was removed. Now, you will need to pay LTCG at the rate of 20% with indexation benefits. Taking the above example used to calculate LTCG, let us now find out what the total tax payable will be.
|Cost of property purchase – 2007||40,00,000|
|Sale price of property – 2011||80,00,000|
|CII – 2007||551|
|CII – 2011||785|
|Indexed Cost Price||40,00,000 * (785/551) =Rs.56,98,729|
|LTCG||80,00,000 – 56,98,729 =Rs.23,01,270|
|Capital gains tax @ 20%||23,01,270 * 20% =4,60,254|
|Total capital gains tax payable||Rs. 4,60,254|
The tax will be on the LTCG that you calculated after indexation, that is, on Rs.23,01,270 and not on the Rs. 40,00,000 gain made.
Can I get an exemption on capital gains?
While you cannot get any tax deductions or exemptions for STCG, you can reduce or even eliminate your LTCG tax. You can do this by investing in capital gain bonds or in another residential property. If you want to know more, read this – How to Save Tax on Long-Term Capital Gains. Make use of the exemptions too when you make those long-term capital gains.
i have purchase one house in A.Y.2012-13 and i have sold this house satakhat (first Tokken Amount With 100rs Stamp Paper)preparied A.Y.2014-15. And Other Payment And Dastavage Prepaired A.Y.2015-16 so i have confuse Which year Consider for Sale Date?
While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you get legal counsel or consult your financial advisor to sort this out.
Useful information. Needs to update for the latest informations.
Thanks for your comment. We’re happy that you found the article useful. Here’s a more recent article for your reference.
Thank you for such a clearly written article. I have understood it well. I am sure you will guide me if I have any questions
Thanks for your kind words. We are happy to help.
I was thinking of selling my house to my son, which he would finance by taking a loan.
In such a case would he get all the benefits of the first home buyer, Exemption on interest upto 1.50 lacs (or more, I am not sure)u/s 24 b (pl correct if section is wrong) and will be treated as a regular assessee as if he has bought the house from a Third Party or whether there are any speccial clauses relating to sale transactions between blood relatives.
Further if he spends to renovate the house, can it get added to Improvement costs for the purpose of computing Capital Gains, when he sells it.
I shall be obliged to receive the answers.
Hi Nanda Sambrani, As far as we know, your son has claim tax benefits if he takes a Home Loan. For information on renovation, we suggest that you get in touch with a financial advisor or legal counsel for help.
I have purchased one land for 27Lakhs and after three years I’m selling it to 1 crore,but now the problem is because of some financial bad patch I have to use as a money for paying loan.
In this situation how can I save tax on long terms capital gain which is 30%…??
I currently have another 3BHK where im living which is of 1 crore.
Thanks for writing to us. You can claim a tax exemption under Section 54 of the Income Tax Act, if the entire profit from the sale of house is used to buy another house within 2 years or if you construct a house within 3 years. If a part of the profits are used for any other purpose, the tax exemption will be proportionately calculated. In case you are unable to make such a purchase within the stipulated time, you can leave the amount in a Capital Gains Account and avail of the exemption later. There are are two types of accounts – one is a savings account and the other a deposit account. Both of them offer interest rates similar to a bank savings account or a Fixed Deposit respectively. For more information, you can read our posts on How to save on Capital Gains taxes when selling property and All about Capital Gains.
Hi, I bought a house on 22-Nov-2013 and planning to sell it. Assume that if the buyer forcing me to get into an agreement registration [in Tamilnadu, we need to register the agreement for sale] before November 2016 and if we do sale registration after 22-Nov-2016. What would be the Capital gain for me, either it is Short term or Long term ? Which date would
be considered for identify CG, agreement registration date ? or Sale deed registration date ?
Thanks for writing to us. The date of registration of your sale will be considered as the date for calculating capital gains tax. If you have held the asset for more than 36 months, then it will fall under a long term capital gain.
Thanks for sharing the information. It was very useful.
Thanks for your valuable feedback. Keep reading our blog for more.
Your articles are very illuminative. I shall be grateful if you can send me your tel no in Delhi or bombay so that I can seek an appointment for my IT case.Meanwhile I would like to get your answer on email..:I have flats A B C and D.in India
Can I sell Flat A to purchase flat E after paying 20%capital gain tax after possessing flat A for 3yrs
Thanks for your valuable feedback. BankBazaar is a neutral online marketplace where you can search, compare and apply for financial products free of cost. While we do provide personal finance advice through our articles, we do not give individual advice. Regarding your query on Capital Gains, Long Term Capital Gains are applicable if you have held the asset for 3 years or more. You can save on Capital Gains tax by purchasing another property within the stipulated timeline.
Hi Team BankBazaar
I own Two vacant residential lands in different localities in Bangalore. If I sell them both and invest the Combined Net Consideration in a residential house, will I be able to avail exemption from Capital Gains Tax subject to other provisions of the Act. I already own a house which is self-occupied.
Thanks in advance
While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you consult chartered accountant for help with this.
While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you consult a Chartered Accountant for help with this.
Can benefit of long term capital gains be claimed if property is purchased with another family member jointly?
It is possible to claim capital gains exemptions even if the property is jointly owned.
In case of sale of joint property, can one owner claim indexation benefit while the other owner does not claim indexation benefit?
Hi Siddhartha, While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you consult your financial advisor for more information on this.
I have a plot in Gurgaon allotted to me by HUDA in Feb. 2005. The cost of which was Rs 510000.
Huda has given enhancement of Rs. 900,000 in Jan 2013 . and the interest for not paying installments on time is Rs 700,000.
I have to pay approx 21L to huda.
Now in case I sell it for RS. 77 L ,how should I calculate long term capital gains on this?
Hi Mukesh, While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you consult your financial advisor for help with the calculation. Cheers, Team BankBazaar
please help me that I bought a plot in 2010 at Rs 2 Lac. and on 12 feb 2016 I bought another plot at Rs. 4 Lac. I wants to sell that plot bought in 2010 at Rs 13 Lac( a customer is ready to buy) for construction in the plot that I bought in 2016.
Long term property gain is about to 10 Lac. Can I use this for construction and adjustment in plot rate bought at 1 year before.
please help me
Hi Ratan, You will be able to save on capital gains taxes from the sale of the first plot of land. Check this post for more details.
Sir, I have sold my residential house to a promoter who will build an apartment in which I will get a flat and a sum of money. Will capital gains be calculated on sum of money or cost of flat will be included? Or in other words will the cost of flat be excluded from capital gains as it will be my new residence?
Hi J Biswas,
This might not come under the purview of Capital Gains. We suggest that you get in touch with your legal advisor for more information on this matter.
An agricultural land bought in 1984 for Rs.36000 which was higher than ready reckoner . I sold it after 33 years of holding.
at 2.33 crore. Ready reckoner value is 1.9 crore .
Actual pricing as per indexation is not really matching to the market value. Is there relation of ready reckoner value of today to the value of 1984 ?
Hi Dinkar Vishwanath Saraf,
You need to use the indexation table for calculating the capital gains. You can refer to this post for more
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I understood from your article regarding capital gains tax on sale of property and how to save tax on LTCG. Thanks for the same. I have one general question. As per Section 54 , one can sell a flat and buy another one within the specified periods and claim tax benefit. If one already owns more than one flat (for e.g. three or four flats – this is only example and not my specific case), can one claim tax exemption by selling one of them and buying another ONE only?
One another query is when purchasing an under construction flat – which date will be considered as purchase date – is it sale deed registration date?
Thanks for your response.
As far as we know, you can get tax exemption by buying one property after selling one. We suggest that you contact your legal counsel for clarity. Usually, the regsitration date is considered as the sale date.
I took possession of my property in financial year June-2012. Which I intend to sell the same.
Cost of acquisition of my flat was Rs. 33./- lakh & probable sell price is (nett) Rs. 55 lakh. pl share
how much capital tax i have to pay considering the change in holding period of property more
than 2 years & change in indexation year 2000. Moreover is there need to cut TDS for registration
of transaction? if so, can I adjust /appropriate that TDS against total tax amount to pay?
Hi Shrikant Kulkarni, Please read this blog post for information on how to calculate capital gains. There might be TDS applicable on sale of property. We suggest that you get legal counsel to understand this better.
I have purchase house in 2012 dec at 1400000 from which i have taken loan of 800000 and repay it in 2 year.
I have sold that house in Jan 17 at 3000000. I have given 600000 to builder but i do not have any proof for that. I have slip of 400000 but it does not have revenue stap ticket.
what will be my capital gain tax.
what will be penalty if i am not paying this tax.
Please read this blog post for information on how to calculate capital gains. The penalty for non-payment is at the discretion of the Income Tax department.
Will you please advise that if a landed property which is not appreciated even after many years what will be long term taxation in those cases as I have purchased it through a company which has not developed it and I require the money urgently.
Hi T . Chakrabarti,
Long term capital gains will be incurred only when the sale price for it exceeds the cost of purchase. The formula is Gross Long-Term Capital Gain (LTCG) = Sale price of property – (indexed cost of purchase of property + indexed cost of improvement of property + any other expenditure incurred on sale or transfer). If you incur a capital loss instead of gain, there is no question of taxation.
What is the difference in LTCG rate on sale of Land property between FY17-18 and FY18-19?
Hi Vasant, The LTCG tax rate will remain the same for all financial years unless there’s a change in the Union Budget. Only the Cost Inflation Index used for calculating the tax will differ. The CII for 2017-18 is 272. Cheers, Team BankBazaar
what would be the Tax Implication of transferring shares from a single to a joint demat a/c where the Single(Solo) Holder continues to be the First Holder in the Joint Demat Account too .. from the point of view of LTCG or and also from point of view future sale from that Joint Account
As far as we know, there are no tax implications of transferring shares to a joint account where you are the primary holder. We suggest that you get in touch with a chartered accountant just to be sure.
I had the residential flat in my name purchased for Rs 9 lacs in 2003 (gifted by my mother). In 2010 – 11, the flat was sold for around Rs31Lacs.
What amount of tax is actual payable on the capital gain (What is the procedure for calculating the tax)
And , whether the capital gain acquired after selling the flat belongs to me or my mother ?
Thanks for getting in touch. We’ve outlined the steps to help you calculate tax on your long-term capital gains (LTCG).
Step 1: Because you’ve sold your property after holding it for more than three years, it becomes a long-term asset and LTCG will apply.
Step 2: Calculate the indexed cost of property when it was purchased, indexed cost of improvement of property, and any other expenditure incurred on sale or transfer.
If you need help with this, please refer to the Cost Inflation Index.
Step 3: Calculate your net gains using the following formulae.
• Gross LTCG = Sale price of property – (indexed cost of property when it was purchased + indexed cost of improvement of property + any other expenditure incurred on sale or transfer)
• Net gains = Gross LTCG – Exemption (if availed) u/s 54 or 54EC or 54F
Step 4: Determine your tax deduction. You will need to pay LTCG at the rate of 20% with indexation benefits.
The total tax to be paid on LTCG is 20% of the Net gains.
We hope this will help you calculate your tax on LTCG. Also, because the property is in your name, the capital gain incurred after selling the property should ideally belong to you.
Dear Team Bankbazaar,
Thanks for the well written article and information provided. I have a question in relation to calculating long term capital gain taxes, please clarify/ explain what is considered to be the Acquisition cost or Purchase cost in case of a residential open land/ plot purchased. Is this the amount mentioned as sale price in the Sale Deed only considered as Purchase cost. Sometimes in few transactions some amount would be paid in cash in addition to the amount mentioned in the Sale Deed, so how to account for this extra amount paid. Is there a way to add this extra amount in acquisition/ purchase price for calculating capital gains. What proof or evidence need to be produced for the amount which was paid in addition to the amount mentioned in the Sale Deed. Please clarify, thanks very much in advance.
Thanks for stopping by. We are so sorry to hear of your predicament. Unfortunately, we aren’t the right people to advice you on this query. We suggest you speak to your legal counsel to help you solve this issue. All the best!