Calculation of Capital Gain Tax on Sale of Property

capital Gain Tax in India

One of the most confusing aspects of the taxation system in India, not just for NRIs but also for ordinary residents is the calculation of capital gain tax on a sale of property in India. If you are very confused about this, we are definitely here to give you a guiding hand. However, we also recommend that you get in touch with a qualified chartered accountant, who will be able to give you advice that is specific to your situation. Through the course of this article, you will be able to understand how to easily calculate capital gains on the sale of property in India, be it a calculation of long-term capital gain tax on a sale of property in India or calculation of short-term capital gain tax on the sale of property in India. Once you are able to do this successfully, this will lead you to the calculation of capital gain tax on the sale of property in India. In addition, you also have a clear picture of what is capital gain tax rate.


What Is A Capital Gain?

Any profit or gains that you receive from the sale of any property or asset owned by you is known as a capital gain. This gain or profit that you make from the sale of an asset is taxable, as per the provisions of Indian law. The tax is usually calculated in the same financial year as the sale of asset took place. You should keep in mind that the Income Tax Act of India exempts taxation on gifted property. For example, if you have received an apartment as a gift from a relative, then you will not be charged any capital gain tax on it. However, should you choose to sell this apartment to a willing buyer, and then you will have to pay a capital gain tax only on that particular transaction.


What Are Short-Term And Long-Term Capital Gains?

In order to understand this, we must first understand what exactly the difference between a short-term asset and long-term assets.


Short-Term Asset

  • A short-term asset is one that has been in your possession for 24 months or less. This includes assets like land, building or house property.

Long-Term Asset

  • A long-term asset is one that has been in your possession for more than 24 months. This includes land, building or house property.
  • This classification does not apply to a movable property like jewelry, mutual funds, securities held in companies, etc. Here, it will be considered a long-term asset only if it has been your possession for more than 36 months. Otherwise, it will be a short-term asset.
  • The income or profit made by you by selling a long-term asset is long-term capital gain. On the other hand, any profit made by you on the sale of short-term assets becomes your short-term capital gain.

How Can You Calculate Capital Gains Tax?

  • Long-Term Capital Gains Tax is charged at 20% for the current financial year. In addition to this, you will also be charged a surcharge and an education cess.
  • On the other hand, short-term capital gains tax is taxable at 15% for the current financial year. In addition, you will also be charged a surcharge fee and an education cess.

What Are The Exceptions On Capital Gains Tax?

If you have received a long-term or short-term asset as a gift, then you are exempt from the capital gains tax for that year. However, if you are selling the property again at a profit, you will be liable to pay a tax on that transaction.


A Word of Caution: How to Deal with Black Money?

Sometimes, a buyer may request you to accept a significant amount of money in cash, while marking down the sale value of your property. If this happens, we recommend that you do not go forward with it. While you may save a few thousand in tax, this could lead to serious complications for you, especially because you are an NRI. The amount not on paper will be considered black money. It is highly likely that the source of income could be questioned by the authorities later on. In addition, you may not be able to legally repatriate this amount to your country of residence. So ensure that everything is legal before making a sale.


By now, you should have a clear understanding of what is capital gain tax rate. You now know the difference between short-term capital gains tax and long-term capital gains tax. Not only that, you should know the calculation of long-term capital gain tax on sale of property in India as well as the calculation of short-term capital gains tax on sale of property in India. Once you know these steps, the calculation of capital gain tax on the sale of property in India will become far easier for you. We hope we have answered all your pressing questions like “how to easily calculate capital gains on the sale of property in India” and “what is capital gain tax rate”. While this information will definitely help you, we highly recommend that you find a qualified chartered accountant to go through the relevant documents and calculate this for you. This will help you avoid all legal pitfalls in the long-run.