This question is in the mind of almost every property owners whether there will be any tax after selling of their property and how much is the tax and how to save it. The answer is yes, there is a tax which has to be paid after selling of property. It is called Capital Gain Tax. Here we will discuss about the tax, how is it calculated and how to save the tax in a simplified manner.
In very simple words, capital gain is the profit that a person realizes after he/she sells an asset for a higher price than purchased price. The tax on the profit is called Capital Gain Tax. Asset can be in terms of shares, raw materials, gold bonds etc. however, we are going to discuss here only immovable properties or real estates.
Capital Gain is classified as below –
In this context, we should mention that, in the current budget session, an amendment has been proposed by the Government to reduce the long term capital gain period from 36 months to 24 months.
Cost Inflation Index or CII is being notified by Income Tax Department. IT Department prepares it in related to inflation and increasing value of rupee. CII is used to calculate long term capital gain tax.
The Cost Inflation Index chart:
In Budget 2017, the base year of indexation has been changed from 1981 to 2001
Here is how to calculate indexed cost of acquisition asset
Let us take a scenario. Mr. X purchased a flat of Rs. 30 Lakhs in June, 2005. He sells his flat with a price of Rs. 75 Lakhs in October, 2015.
As Mr. X sold his flat after 10 years, so the gain will be treated as long term.
Flat purchased in June 2005 = 30 Lakhs
Flat sold in October 2015 = 75 Lakhs
Indexed Cost of the property = Actual Purchase Price X (Index in the year of Sale / Index in the year of Purchase)
= Rs. 30 Lakhs X (1081/497) = Rs. 65.4 Lakhs
Sale Amount = Rs. 75 Lakhs
Capital Gain = 75 Lakhs – 65.4 Lakhs = Rs. 9.6 Lakhs
So the tax is calculated only on the capital gain. In the above illustration, the tax is calculated on the capital gain i.e. Rs. 9.6 Lakhs.
The tax can be exempted or saved under section 54 if anyone can follow any of the below –
The illustration and definition above are provided in a simple manner to make everyone understand easily. If you like the article and think useful, share it with your friends and family.
Author: Arnab RayShare -
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