What is Capital Gain and What you need to Know ??

What is capital gain Tax

Before we try to know Tax on capital gain , let us first know what is capital . In commerce capital means assets (Fixed or current) like land, property, investment in

shares , MF etc. It is called "Punji" in Hindi.

So Capital gain (or loss) is a rise in value (or decrease in value) of your asset or your Punji.

So if you bought a property for Rs. 10 lakh and sold it for Rs.11 lakh , 1 lakh is your capital gain (profit) and it is Taxable in your hand.

Capital gains are of two types

Short term capital Gain

Long Term Capital gain

In above example if you sold property within 24 months it is short term capital Gain , if you sold after holding more than 24 months it is Long term Capital gain .

Tax treament in both cases will be different.

take this example :

Mr A bought a Flat in 2012-13 (2012-13 means from april 2012 to March 2013) for Rs 15 lakh and he sold the flat for Rs 50 lakh in 18-19. How much tax he will have to

pay?

Ans : As Mr A has held the property for more than two years, gain from its sale will be long-term & Taxed @20%

He will be allowed to index the cost of acquisition and the cost of any improvements made to it over the years. Indexation is done by multiplying the property’s cost

by the Cost Inflation Index (CII) of the year in which it is sold and dividing it by the CII of the year in which it was purchased.

Long Term Capital gain = Sale price - indexed cost of acquisation of property ( Not purchase price)

in 2012-13 CII for property was 200

in 2018-19 CII for property is 280

so indexed cost of purchase price of property= Rs.15 Lakh*(280/200)= Rs. 21 Lakh

capital gain =Rs.50lakh - Rs.21 Lakh=Rs 29 Lakh.

Tax 20% of Rs.29Lakh = Rs 580000 /-

In short term capital gain cost of Indexation is not taken into consideration;

so in above example if property was was sold in 13-14 itself then short term capital gain will be

Rs50lakh-Rs15 lakh= Rs35lakh. Tax will be 30% of Rs.35 lakh= Rs.10.50 lakh

Please note that any expenses incurred after purchase like improvement of house etc are to be added in purchase price of house and any expenses incurred in selling the

house like brokerage, advertisement etc are allowed to be deducted from sale price in calculating both types of gains.

Govt keeps publishing CII rate of property every year.

Next I will let you know how to save Tax on capital gain