How to Calculate Long Term Capital Gain on Property?

Here's a general overview of

how to calculate LTCG on sale of property

:

The cost of acquisition is the amount you paid to acquire the property. It includes the purchase price, stamp duty, registration fees, and any other expenses directly related to the purchase of the property.

If you inherited the property, the cost to the previous owner is considered as the cost of acquisition.

Since the cost of acquisition is adjusted for inflation, you need to calculate the indexed cost of acquisition. This is done by applying the Cost Inflation Index (CII) published by the Income Tax Department for the year of acquisition and the year of sale.

The formula for calculating the indexed cost of acquisition is:

Indexed Cost of Acquisition = Cost of Acquisition × (CII for the year of sale / CII for the year of acquisition)

: The sale price of the property is the amount you received from the sale transaction.

: If you have incurred any expenses on improving the property, such as renovation or construction, you need to calculate the indexed cost of improvement using the same formula as above.

: Subtract the indexed cost of acquisition and the indexed cost of improvement (if any) from the sale price to arrive at the long-term capital gain.

Long-Term Capital Gain = Sale Price - (Indexed Cost of Acquisition + Indexed Cost of Improvement)

: You may be eligible for exemptions under Sections 54, 54F, 54EC, or other provisions of the Income Tax Act, which allow you to reinvest the capital gains in specified assets to avail tax benefits.

If you meet the conditions specified under these sections, you can claim exemptions from LTCG tax.

: If the long-term capital gains are not eligible for any exemptions, they are taxed at a flat rate of 20% (plus applicable surcharge and cess) under the Income Tax Act.

LTCG Tax = Long-Term Capital Gain × 20%

This is how to calculate LTCG on sale of property

.

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Worrying how to calculate LTCG on sale of property. Calculating long-term capital gains (LTCG) on property involves several steps and factors. Here's a basic guide to help you understand the process:

• Determine the Cost of Acquisition:

  This includes the actual cost of purchasing the property, along with any additional expenses such as brokerage fees, stamp duty, registration charges, legal fees, etc.

• Calculate Indexed Cost of Acquisition:

  Since the property may have been held for several years, you need to adjust the cost of acquisition for inflation using the Cost Inflation Index (CII) published by the Income Tax Department. The formula is:

Indexed Cost of Acquisition = (Cost of Acquisition) × (CII of the year of sale) / (CII of the year of acquisition)

• Determine the Sale Price:

  This is the amount for which you sold the property.

• Calculate Indexed Cost of Improvement:

  If any improvements were made to the property after its acquisition, such as renovation or expansion, you need to calculate the indexed cost of improvement using the same formula as for the indexed cost of acquisition.

• Determine Long-Term Capital Gain:

  Subtract the indexed cost of acquisition and the indexed cost of improvement (if any) from the sale price. This gives you long-term capital gain.

Long-Term Capital Gain = Sale Price - (Indexed Cost of Acquisition + Indexed Cost of Improvement)

• Apply Applicable Tax Rate:

  Long-term capital gains on property are taxed at a rate of 20% (plus applicable surcharge and cess) after indexation.

• Claim Exemptions or Deductions:

  You may be eligible for certain exemptions or deductions under Sections 54, 54B, 54EC, 54F, etc., if you reinvest the LTCG in specified assets like another property or bonds within the stipulated time frame.

These can help reduce or defer your tax liability. This is how to calculate LTCG on sale of property.

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Whenever a person sells his property the money received from it is known as capital gain. There are two types of capital gain: Long term capital gain and short term capital gain. Here I will describe

how to calculate long term capital gain on property.

This type of tax is applied on assets in

India after 12 months to 36 months of ownership depending on the type of the property. 

• The long term capital gain tax will be charged 20% on profit.

These are the major factors that contribute in calculation of long term capital gain.

• Sale consideration

This is the sale price of the property less selling expenses. Which means if you have made any expenses related to the sale of the property. You can deduct those expenses from the profit. 

• Cost of Acquisition

Cost Acquisition involves commission paid to any broker, advertising expenses and legal expenses for example expenses incurred during the transfer of the property.to calculate the cost of acquisition you need to apply the formula mentioned below:

• Indexed cost of Acquisition.

Cost of acquisition of the property is known as the cost price of the that you have paid at the time of purchase of the property or construction of the property, stamp duty charges and other miscellaneous expenses. The formula to calculate indexed cost acquisition is as follows: 

Index acquisition cost calculation = Purchase price of the property x CII of the financial year in which property was sold / CII of purchase year of the property

The formula for long term tax calculation is as follows: 

• Difference between net sales consideration and indexed cost of property. 

• The tax rate is 20% as of now.

Let us understand

how to calculate long term capital gain on property using an example:

Rakesh sold his property for Rs. 5000000 in 2019 which he bought in 2012 for Rs. 3000000. He falls in the income tax bracket of 20%. He spent 3 lakhs in 2016 on house renovation and paid a brokerage commission of 0.5% while selling the house. 

Long term capital gain = 5000000 - (4200000 + 420000 + 25000)

Long term capital gain = Rs. 355000

Index acquisition cost calculation = Purchase price of the property x CII of the financial year in which property was sold / CII of purchase year of the property

Index acquisition cost calculation = 3000000 x 280/200

Index acquisition cost calculation = 4200000

Indexed cost of improvement calculation = cost of renovation x CII of sale year / CII of purchase year 

Indexed house renovation cost calculation = 300000 x 280 / 200

Indexed house renovation cost calculation = 420000

Brokerage = Sale price x 0.5%

Brokerage = 5000000 x 0.5%

Brokerage = 25000

This is the formula for how

to calculate long term capital gain on property.