All about Short Term Capital Gain tax on Property Buying Guide

The profits earned by investors on the sale of their capital assets is called as ‘Capital Gainfor. These gains are considered as income and therefore, are added to the taxable incomes’. You make gains by selling the capital asset for a price higher than what it was purchased for the year when the capital asset was transferred. The tax that applies to such gains is called as Capital Gains Tax (CGT).

Types of Capital Assets:

For making taxation easy, the capital assets are classified to ‘Short-Term Capital Asset’ and ‘Long-Term Capital Asset’.

If you have sold your house within a three year period from the time you purchased it, then the profits from the sale are considered to be a short-term capital gain. These gains become a part of your total income and are taxed as per the existing slab tax rates.

Methodology for Computing Capital Gains

Short-term capital gains tax = A- (B+C+D)

A= Sale value of the asset

B= cost of acquisition

C= cost of improvement

D= the cost of expenditure incurred totally and solely in connection with a transfer.

How do I calculate short-term capital gain?To calculate short-term capital gain, you will have to take the overall value of consideration (the asset’s sales consideration) and subtract from it the expenditure incurred fully and exclusively with regard to the transfer of a capital asset (commission, brokerage, etc.). The figure that you get from this calculation is called the net sale consideration, from which you will have to subtract the cost of acquisition and the cost of improvement and you will get the short-term capital gain amount.

For Example: Mr. X is a resident individual and he sells his house on 12/4/2015 for Rs.35,00,000. He had purchased the house on 5/7/2013 for Rs.10,00,000 and spent Rs.2,00,000 on its improvement during May 2014. During the previous year 2015- 2016, his income under all heads excluding capital gains was NIL. Since the asset was held for less than 36 months, it is a short term capital asset and the

Short-term capital gain: 35,00,000 - 50,000 – 10,00,000 – 2,00,000 = Rs 22,50,000

Therefore, his short term capital gain of Rs 22,50,000 will attract a tax rate of 30% as per existing income tax rate slabs, which amounts to Rs 6,75,000.