Capital Gain Calculator
What is a capital gain?
Capital gain is an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold.This gain or profit is charged to tax in the year in which the transfer of the capital asset takes place.
No capital gains is applicable when an asset is inherited because there is no ‘sale’, only a transfer. However, if this asset is sold by the person who inherits it, capital gains tax will be applicable. The Income Tax Act has specifically exempted assets received as gifts by way of an inheritance or will.
What is a capital asset?
As per S.2(14) of the Income Tax Act, 1961, unless the context otherwise requires, the term “capital asset” means:
(a) property of any kind held by an assessee, whether or not connected with his business or profession;
(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992; but does not include:
(i) any stock-in-trade, other than the securities referred to in sub-clause (b), consumable stores or raw materials held for the purposes of his business or profession;
(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes:
(b) archaeological collections;
(e) sculptures; or
(f) any work of art.
1. For the purposes of this sub-clause, “jewellery” includes:
(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.
2. For the purposes of this clause:
(a) the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;
(b) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956;
(iii) agricultural land in India, not being land situate:
(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or
(b) in any area within the distance, measured aerially:
(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or
(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or
(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.
Explanation: For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.
(iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;
(v) Special Bearer Bonds, 1991, issued by the Central Government;
(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.
Explanation: “Property” includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.
What are long-term and short-term capital assets?
The taxability of capital gains depends on the nature of gain, i.e., whether short-term or long-term. Hence, to determine the taxability capital gains are classified into short-term capital gain and long-term capital gain. In other words, the tax rates for long-term capital gain and short-term capital gain are different.
A capital asset held for not more than 36 months or less is a short-term capital asset. An asset that is held for more than 36 months is a long-term capital asset.
For example, a house property held for more than 3 years is termed as a long-term capital asset, whereas equity funds are considered short-term when held for 12 months or less. Debt Funds are long-term assets when held for more than 36 months.
Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014, irrespective of what the date of purchase is.
The assets are:
- Equity or preference shares in a company listed on a recognized stock exchange in India
- Securities (like debentures, bonds, Govt securities etc) listed on a recognized stock exchange in India
- Units of UTI, whether quoted or not
- Units of equity oriented mutual fund, whether quoted or not
- Zero coupon bonds, whether quoted or not.
When the above listed assets are held for a period of more than 12 months, they are considered long-term capital asset.
In case an asset is acquired by gift, will, succession or inheritance, the period this asset was held by the previous owner is also included when determining whether it’s a short term or a long term capital asset. In case of Bonus Shares or Rights Shares the period of holding is counted from the date of allotment of bonus shares or Rights Shares respectively.
Calculating capital gains
Capital gains are calculated differently for assets held for a longer period and for those held over a shorter period.
Terms you need to know
- Full value consideration: The consideration received or to be received by the seller in exchange of his assets, which he has transferred. Capital gains is chargeable to tax in the year of transfer, even if no consideration has been received.
- Cost of acquisition: The value for which the capital asset was acquired by the seller.
- Cost of improvement: Expenses incurred to make improvements to the capital asset by the seller. Note that improvements made before April 1, 1981 is never taken into consideration.
- Indexed cost of acquisition is calculated as: Cost of acquisition / Cost inflation index (CII) for the year in which the asset was first held by the seller, or 1981-82, whichever is later X cost inflation index for the year in which the asset is transferred.
- Indexed cost of improvement is calculated as: Cost of improvement / CII for the year in which the improvement took place X cost inflation index for the year in which the asset is transferred.
How to calculate the indexed cost of property acquisition?
To calculate LTCG from the property, the seller has to calculate the indexed cost of acquisition. The Central Board of Direct Taxes (CBDT) will declares cost inflation index (CII) numbers for the every financial year. If you plan to sell your property, calculate the indexed cost of property acquisition using the new number to arrive at the actual capital gain, and save on capital gains tax.
How to calculate long-term capital gains?
The computations for the capital gains are as follows:
Short-term capital gain (STGC) = Full value consideration- (cost of acquisition + cost of improvement + cost of transfer)
Long-term capital gain (LTCG) = Full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer).
Where; Cost of transfer is a brokerage paid for arranging the deal, legal expenses incurred, cost of advertising, etc.
1. Start with the full value of consideration
2. Deduct the following:
a] expenditure incurred wholly and exclusively in connection with such transfer
b] indexed cost of acquisition
c] indexed cost of improvement
3.From this resulting number, deduct exemptions provided under sections 54, 54EC, 54F, 54B.
4. This amount is short-term capital gain or long term capital gain.
Expenses that can be deducted from full value for consideration
Expenses from sale proceeds from a capital asset that wholly and directly relate to the sale or transfer of the capital asset are allowed to be deducted. These are the expenses which are necessary for the transfer to take place.
In case of sale of house property, these expenses are deductible from the total sale price:
- Brokerage or commission paid for securing a purchaser
- Cost of stamp papers
- Travelling expenses in connection with transfer – these may be incurred after the transfer has been affected
- Where property has been inherited, expenditure incurred with respect to procedures associated with the will and inheritance, obtaining succession certificate, costs of executor, may also be allowed in some cases.
In case of sale of shares, you may be allowed to deduct these expenses:
- broker’s commission related to the shares sold
- STT or Securities Transaction Tax is not allowed as a deductible expense.
Where jewellery is sold, and a broker’s services were involved in securing a buyer, the cost of these services can be deducted.
Note that expenses deducted from sale price of assets for calculating capital gains are not allowed as deduction under any other head of the income tax return, and these can be claimed only once.
Section 54: Exemption on sale of house property on purchase of another house property
Following conditions should be satisfied to claim the benefit of section 54.
- The benefit of section 54 is available only to an individual or HUF.
- The asset transferred should be a long-term capital asset, being a residential house property.
- Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).
With effect from assessment year 2015-16 exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only. No exemption can be claimed in respect of house purchased outside India.
The taxpayer has to invest the amount of capital gains and not the entire sale proceeds. If the purchase price of the new property is higher than the amount of capital gains exemption shall be limited to the total capital gain on sale.
Section 54F: Exemption on capital gains on sale of any asset other than a house property
The section 54F gives you exemption from the capital gains even if your sold property is not a residential property. But, the new property must be the residential property. This rule promotes the purchase of a residential house.
The new property can be purchased either one year before the sale or 2 years after the sale of the property. The gains can also be invested in the construction of a property, but construction must be completed within 3 years from the date of sale.
In Budget 2014-15, it has been clarified that only ONE house property can be purchased or constructed from the capital gains to claim this exemption. Its important to note that this exemption can be taken back if this new property is sold within 3 years of its purchase.
The entire sale proceeds towards the new house will be exempt from taxes, if you meet the above said conditions.
However, if you invest a portion of the sale proceeds, The exemption will be the proportion of the invested amount to the sale price or exemption = Amount Invested (cost of new house) x capital gains/net sales consideration.
Section 54EC: Exemption on sale of house property on reinvesting in capital gains account scheme
The benefit under section 54EC can be availed of only if there is an income from a capital asset, being long-term in nature. Long-term capital gains are the profit that a person makes when he sells any capital asset (for example, any immovable property, jewellery or shares) which he has held for a period exceeding three years. An exception is his holding of shares in which the holding period has been fixed at one year.
Any person (including NRI out of NRO account on a non-repatriable basis) and Hindu undivided family (HUF), through its Karta, can make investments (not exceeding Rs 50 lakh in a given financial year) in the two bonds notified by the Government of India. In case only part investment is made, the amount of deduction gets reduced in proportion to the investment.
The two corporations which have been notified by the Government of India as being eligible for issue of these bonds are (a) National Highway Authority of India (NHAI) and (b) Rural Electrification Corporation (REC).
- If you are not very keen to reinvest your profit from sale of your first property into another one, then you can invest them in bonds for up to Rs. 50 lakhs issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
- The money invested can be redeemed after 3 years; but cannot be sold before the lapse of 3 years from the date of sale.
- The homeowner has six month’s time to invest the profit in these bonds, although to be able to claim this exemption, you will have to invest before the tax filing deadline.
Section 54B: Exemption on capital gains from transfer of land used for agricultural purpose
When short-term or long-term capital gains is made from transfer of land used for agricultural purpose by the taxpayer or his parents for 2 years immediately prior to the sale, exemption is available under Section 54B.
The amount, investment in the new asset or capital gain, whichever is lower, that is reinvested into a new asset within 2 years from the date of transfer is exempt.
The new agricultural land which is purchased to claim capital gains exemption should not be sold within a period of 3 years from the date of its purchase.
In case you are not able to purchase agricultural land before the date of furnishing of your Income Tax Return, the amount of capital gains must be deposited before the date of filing of return in the deposit account in any branch (except rural branch) of a public sector bank or bank according to the Capital Gains Account Scheme, 1988. Exemption can be claimed for the amount which is deposited.
If the amount which was deposited as per Capital Gains Account Scheme was not used for purchase of agricultural land, it shall be treated as the capital gain of the year in which the period of 2 years from the date of sale of land expires.