When you sell a property, any gains earned out of it, are taxable under capital gains tax.if the property was transferred within three years of acquisition, then these are the short term capital gains. If the period was more than three years, it will be considered as long term capital gains. I will also talk about
indexation benefit calculation in detail here.
Short term capital gains (STCG) are added to other income of the seller and prescribed tax slab rates are applicable as per the income tax act. On the other hand long term capital gains (LTCG) are taxed at 20% with indexation.
What is indexation?Indexation is the process in which the purchase cost of any property is adjusted against inflation. It helps you to lower your tax liabilities as it lowers the taxable amount of capital gains.
To understand the indexation
benefit on property let us check an
example: If you purchased a property for
₹ 20 lakh in 2015-16 and sold it for ₹ 70 lakh in 2021-22, an LTCG on the profit of ₹ 50 lakh will have to be paid by you. Due to the indexation benefit, the cost of acquisition will also increase, which will effectively lower down the taxable amount.
How to calculate indexed cost of property?For the indexation benefit calculation, the Cost Inflation Index (CII) is taken into account. The Cost Inflation Index (CII) is declared by the Central Government for each financial year.
The following formula will be used to calculate the Indexation benefit:
(CII for the year of sale / CII for the year of purchase) X actual purchase priceUsing this formula, capital gains will be calculated and 20% tax will be charged over it or 10% plus surcharge and 4% education cess will be charged.
The CII for each financial year is available on the Income Tax Department’s official website incometaxindia.gov.in.
Indexation benefit to NRIIndexation benefit is same for an NRI and non NRI for residential properties. All taxpayers can avail the benefits of indexation.
I hope
indexation benefit calculation is clear to you now.
Read more: What is indexation benefit? How to calculate indexation on property?Your Feedback Matters! How was this Answer?
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Authors Of The Question
How is indexation benefit calculated?
Unnati
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2022-03-16T10:37:08+00:00 2024-10-04T15:47:07+00:00Comment
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