Capital Gains Calculator
According to the Income Tax Act, 1961, any monetary gain that is earned by an individual, firm, or company by selling a capital asset – that means it is sold at a higher price than the price it was bought for is a Capital Gain. On the other hand, if the asset is sold at a lower value than the price it was purchased for, it is termed as a Capital Loss.
Here, income from the Capital Gain derived from selling a capital asset is taxable.
What is a Capital Asset?
Capital Assets could be in the form of land, trademark, vehicles, housing property, machinery, commercial building, jewellery, patent, etc.
Specific Capital assets are excluded in the IT Act list, which is as follows:
- Agricultural land in the rural area
- Trade Stock or any consumables or raw material used for business or profession
- Personal items like furniture, clothes, etc.
- Gold deposit schemes for example 6.5% Gold bonds or National Defence Gold Bonds issued by the central government
- Special bearer bonds in India
- Gold deposit bonds or certificates issued under Gold Monetisation scheme 2015
What is Capital Gain?
Income generated from the sale of a capital asset, which is discussed above, is a Capital Gain, which is taxable income. Capital gains are not applicable in certain cases like:
- The inherited property where no sale has taken place, only ownership has been transferred
- Assets received as gifts through will or inheritance
But if the above-inherited property, jewellery, or assets are sold at a profit, it will be officially termed as a capital gain, and capital gain tax calculator will be applied.
Types of Capital Gains Tax
Capital Gains Tax is levied on Capital assets that can be categorised into two categories:
- Short Term Capital Assets
- Long term Capital Assets
Short term capital assets are those which are held by the owner for less than 36 months. For immovable properties like land, property, building, the tenure has been reduced to 24 months under the IT changes done in the fiscal year 2017-18.
Some of the other short-term assets are those which are held only for 12 months or less, provided the transfer date of such assets is posted 10th July 2014, after which the rule changed irrespective of the purchase date of these assets. If these assets are held for more than 12 months, they will fall into the category of long terms capital assets. Examples are:
- Equity shares which are recognised on an Indian Stock Exchange
- Securities like bonds and debentures which are again registered on the stock exchanged of India
- Zero-coupon bonds
- Units of equity-oriented units or the UTI units - whether they are quoted or not
****For Bonus shares or rights shares, the terms will be counted from the date of their allotment***
Long term capital assets are those that are held by the individual, firm, or organisation for more than 36 years. The reduced period of 24 months is applied only to immovable property and not to other assets like jewellery, movable assets, debt-oriented mutual funds, etc.
Capital Gains Tax Calculator on Short and Long terms capital assets.
|Type of Tax||Condition and situation||Tax Rate|
|Long term capitals gain tax calculator||Exceptions are – equity shares sale and equity-oriented fund units.||20%|
|Long term capitals gain tax calculator||Applicable for equity shares and equity-oriented fund units||10% above Rs 1 Lakh|
|Short terms capital gains tax calculator||In this case, a transaction tax on securities is not applicable||The short terms capital gains tax is further added to the ITR of the individual, and he is liable to pay the tax as per the slab of IT|
|Short terms capital gains tax calculator||In this case, a transaction tax on securities is applicable.||15%|
Capital Gains Tax Calculator on Equity and Debt Mutual Funds
Debt mutual funds need to be held in possession for a minimum of 36 months to be acknowledged as a long term capital asset. Else it will be included under the ITR slab, making it a part of regular Income Tax calculated. Let’s look at the tax calculator for these funds:
|Types of Funds||Effective from 11th July 2014||Effective before 10th July 2014|
|Equity Funds||15% - short term gains Nil – Long term gains||15% - short term gains Nil – Long term gains|
|Debt Funds||According to the rates of tax slab – short term gains. 20% with indexation (covered later) – long terms gains||At tax slab rates – short term gains. 10% minus indexation and 20% plus indexation – whatever is lower – long terms gains|
Period of holding of short term and long terms assets
|Asset||Period||Short term/Long Term|
|Immovable Property||Less than 24 months More than 24 months||Short Term Long Term|
|Listed Equity Shares||Less than 12 months More than 12 months||Short Term Long Term|
|Unlisted shares||Less than 24 months More than 24 months||Short Term Long Term|
|Equity Mutual Funds||Less than 12 months More than 12 months||Short Term Long Term|
|Debt Mutual Funds||Less than 36 months More than 36 months||Short Term Long Term|
|Other Assets||Less than 36 months More than 36 months||Short Term Long Term|
Capital Gains Tax Calculator
Capital Gain Calculator works differently for both long term and short term capital gains. Before we delve into the tax calculations of both, let us understand a few important terminologies that will be used further:
FVC or Full Value Consideration
It is a term used for the amount of consideration, which the seller receives in return for his capital asset transfer to the buyer. This full value consideration amount is taxable in the year when the transfer takes place, whether the amount is received by the seller or not.
COA or Cost of Acquisition
This is the value at which the seller acquired the capital asset.
COI or Cost of Improvement
Any cost incurred by the seller in renovations, transformations, or additions in the capital asset is the cost of the improvement. Any improvements that have been made before 1st April 2001 will not be taken into account.
***In certain case when the taxpayer acquires the capital asset through an outright purchase, the cost of acquisition and cost of improvement of the previous owner will also be taken into consideration***
Indexation means to adjust the price of the capital asset based on a standard index so that it becomes easier to factor in the rate of inflation while calculating the profits earned by the seller while selling the asset. This is crucial and complex as the prices fluctuate from time to time. So, in this case, it is not recommended to calculate profits based on the original price of an asset, as it won’t be an accurate measure. Indexing helps in retrieving a reasonable figure, especially in case of long-term capital gains taking inflation into account.
Indexed Cost of Acquisition and Indexed Cost of Improvement
Cost of acquisition and improvement is indexed by applying CII (cost inflation index) to adjust inflation while holding the asset over the years. This increases one’s cost base and lowers capital gains.
Indexed cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year of transfer of asset/ Cost inflation index (CII) of the year in which asset was first held by the seller or 2001-02 whichever is later.
Indexed cost of improvement = Cost of improvement * Cost inflation index of the year of transfer of asset/ Cost inflation index of the year in which improvement took place
Cost Inflation Index – CII
This is a fixed index and is declared every year by the central government. It is a crucial parameter in calculating long term capital gains.
Capital Gains Calculator
While calculating the capital gains, the following information needs to be furnished regarding the capital asset in question:
- The sale price of the asset
- Purchase price
- Details of the purchase such as the date, month, and year of the purchase
- Details of Sale such as the date, month and year of the sale
- Investment details like invested in shares, real estate, equity funds, gold or fixed maturity plans
The following details will be generated when the above information will be furnished for capital gain tax calculators:
- The type of investment
- Short term or Long-term gain
- Difference between the purchase price and sale price
- Cost inflation index of the year of purchase
- Cost inflation index of the year of the sale
- The time gap between the purchase and sale
- Long-term capital gain without indexation
- Purchased index cost
- Long-term capital gain with indexation
How to calculate Short Term Capital Gains Tax?
Step 1: Calculate the FVC or the full value consideration
Step 2: Deduct the below mentioned from the full value of consideration:
- Exclusive expenditure incurred towards such transfer
- Cost of acquisition
- Cost of transfer and cost of improvement
Step 3: The remaining amount is a short-term capital gain
The formula is:
Short term capital gain = Full value consideration - expenses incurred exclusively for such transfer - cost of acquisition –the cost of transfer - cost of the improvement.
How to calculate Long Term Capital Gains Tax?
Step 1: Calculate the FVC or the full value of consideration
Step 2: Deduct the below mentioned from the full value of consideration:
- Exclusive expenditure incurred towards the transfer
- Indexed COA or cost of acquisition
- Indexed COI or cost of improvement
- Cost of Transfer
Step 3: From the remainder, exemptions under sections 54, 54F, 54EC, and 54B (explanation is given below) should be deducted.
So, the formula is:
Long-term capital gain= FVC/Full value consideration–Exclusive Expenses for the transfer– Indexed COA/cost of acquisition - Indexed COI/cost of improvement - the cost of transfer - expenses that can be eliminated from the FVC.
****As per the 2018 budget, any equity shares sale or sale of equity-oriented units or funds generating long term capital gains done after 31st March (the end of the financial year) 2018, will be exempted up to Rs. 1 Lakh p.a. In case the value exceeds Rs 1 Lakh, tax at @ 10% will be applied only on Long Term Capital Gains without the benefit of indexation in one fiscal year****
Specific Features of Deductions in Certain Cases
Here is a rundown to the salient features of deductions in certain cases:
For the sale of house property
Capital Gains Tax Calculator is done on the profit that is earned out of the total money earned out of selling of property. However, tax is not charged on the entire amount, and some deductions and exemptions are permissible. If the property is sold within three years of its acquisition, then it will come under the direct income tax slab and will be termed as a short-term capital gain tax calculator. This attracts a flat 20% tax. Exemptions are allowed only if it is over three years of acquisition where it falls in the long-term capital gain tax calculator segment.
The taxpayer can deduct the following expenses from the total sale price of the asset:
- Brokerage or commission paid for selling his asset
- Cost of stamp papers
- Travelling expenses in connection with the sale of his asset, in case these expenses have been borne after the transfer of the asset, has taken place
- In case of inherited property, certain expenditure done can be deducted from the total price like important procedures associated with the will and inheritance, cost of the executor, obtaining a certificate of succession, other paperwork related to legally obtaining the asset may also be allowed in some cases
Exemption on Capital Gains
Exemption on Sale of House Property to Purchase another House Property under section 54:
Under section 54, if the individual earning capital gains by selling his house property further invest the amount of capital gains (not sale proceeds) in two other house properties (construction or buying), he will exempt from paying the capital gains tax. Before the budget of 2019, the applied exemption was for the purchase of only one house with capital gains, but it changed to two houses after 2019. This is only a one-time exemption provided to the taxpayer. Another condition is that gains acquired from the capital do not cross Rs 2 Crore.
In case the price of the new property purchase is higher than the capital gains received by selling the previous property, the exemption will only be the total value of the capital gain derived from the sale. The excess will not be taken into consideration.
Certain conditions to avail the above benefit
- The new property/properties need to be bought either one year or two years after selling the property
- To avail the exemption, the capital gains can also be invested in the building of a new property which should be finished within three years calculated from the sale date
- In the 2014-15 budget, it was claimed that to claim this exemption; only one house property can be bought or built from the capital gains
- An important condition to note is that the exemption will be revoked and considered null and void if the new property is sold within three years of its purchase/completion of construction
Capital gains exemption on the sale of other assets except for a house property under Section 54F:
This exemption that comes in section 54F is applied to capital gains arising from the sale of an asset that is held for a long term, instead of the sale of house property.
- The taxpayer needs to invest not just the capital gains but the full sale proceeds to purchase a new house property to get the benefit of this exemption
- New property purchases should be made either (before the sale) one year or (after the sale) 2 years of the property
- The gains can be utilised to construct a new property. But it should be completed, starting from the sale date, within three years
- This exemption is valid only if the entire sale proceeds derived from the sale are invested in the new property; in this case, the full capital gain will be exempted. If only a part of the sale proceeds is invested, then the capital gains exemption will be in the same part or proportion of the amount invested towards the sale price which is equal to the capital gains multiplied by the cost of a new house or the net consideration
- To claim this exemption according to the budget 2014-2015, only one house property can be purchased or constructed from the full sale proceeds
- If this new property is sold within three years of its purchase
Sale of House/Residential Property Exemption by Reinvesting capital gains in specific bonds under section 54EC:
If the taxpayer is not interested in reinvesting his profit, which he earned by selling his initial property into another property, he can invest the amount in bonds issued by the REC - Rural Electrification Corporation or the NHAI - National Highway Authority of India for up to Rs 50 Lakh.
The invested money can be claimed after three years; however, it cannot be sold before three years from the sale date. This period is increased to 5 years from 3 years with effect from the FY 2018-2019. To avail this exemption, the homeowner must invest the profit in bonds within six months of receiving the profits, and before the tax filing deadline.
Tax Exemptions on Sale of Agricultural Land
In a few cases, capital gains arising by selling of agricultural land can get full exemption from income tax or may get an exemption under the capital gains head:
- The rural area agricultural land in India is not termed as a capital asset, and any capital gains arising by selling it are exempt from paying tax
- If the individual is into stock-in-trade of the agricultural land and is constantly into the purchase and sale of land, as professionally using it as a business, in this case, any gains achieved after selling it will be taxable under the Income Tax slab of Business and Profession
- The capital gains on the sale proceeds are exempted from tax which is received by acquiring urban agricultural land under Section 10(37) of the Indian Income Tax Act
Capital Gains exemptions from Sale of Land utilised for Agricultural Purpose under Section 54B:
- If there are short or long-term capital gains from the sale of land which is used mainly for the purpose of agriculture – by an individual or his parents or the HUF - Hindu Undivided Family – minimum for two years before the sale, the tax will be exempted according to section 54B
- The reinvestment into a new land which will be further used for agriculture must be done within two years starting from the transfer date
- When the capitals gain exemption amount is used to purchase a second agricultural land, starting from the date of its purchase it must not be sold again within three years
- In case the taxpayer is unable to purchase the new agricultural land just prior to the date of filing his ITR, the amount received from capital gains should be deposited in the account in any branch of IDBI or any public bank except in the rural branch according to the Capital Gains Account Scheme, 1988 before the date of filing of return. The exemption can be claimed for the amount, which is deposited
- If the amount, which was deposited under Capital Gains Account Scheme is not used for the purchase of new agricultural land, it will be treated as capital gains of the year in which two years from the date of sale of land expires
In the case of Sale of Shares
Deductions of the following expenses are allowed:
- Broker’s commission related to the shares sold
- A securities transaction tax is not allowed as a deductible expense
In the case of Jewellery Sold
- Broker’s commission related to the sale of jewellery or to secure a buyer
- The costs deducted from the sale price of assets for calculating capital gains cannot be allowed as a deduction which can be claimed only once, under the head of income tax return
Income Tax Rate for Income on Sale of Assets
Asset Asset Duration TAX Immovable Property example land Less than 2 years – Short Term More than 2 years – Long Term IT Slab – Short Term 20.6% with Indexation – Long Term Movable Property example jewellery Less than 3 years – Short Term More than 3 years – Long Term IT Slab – Short Term 20.6% with Indexation – Long Term Listed shares Less than 1 year – Short Term More than 1 year – Long Term 15.45% – Short Term Exempt – Long Term Equity oriented mutual funds Less than 1 year – Short Term More than 1 year – Long Term 15.45% – Short Term Exempt – Long Term Debt Oriented Mutual Funds Less than 3 years – Short Term More than 3 years – Long Term IT Slab – Short Term 20.6% with Indexation – Long Term
Benefits of Investing in a Capital Gains Account Scheme
There are certain limitations to sell/purchase a new property that even the income tax department understands. So an alternative has been suggested to avoid the hassle. Limitations are that the entire process is quite time-consuming. There could be issues regarding finding the right seller, arranging for the required funds, and sorting the immense paperwork it takes to transfer ownership or buy and sell the property.
During the financial year i.e., before the 31st July - the date of filing of the assessment year in which the property was sold, if the capitals gains have not been invested anywhere, so the individual can deposit his funds in a PSU bank or any other bank depositing his funds under the Capital Gains Account Scheme 1988. This deposited amount is tax-free and will be fully exempted. But if the money is not invested as per the scheme, it will be treated as a short-term capital gain in which the specified period lapses.
Ans: Capital losses can be compensated against capital gains only. Short term losses can be compensated against both short term and long-term capital gains, but in the case of long-term capital losses, they can only be compensated against gains arising out of long-term capital.
Ans: The gains are taxable at a flat rate of 20% on the capital gains made.
Ans: Short-term capital gains tax is payable at a rate of 10% on all funds. In contrast, long-term capital gains tax is not payable on equity mutual funds. The taxpayer must declare income from the same when filing IT returns. Profits from the sale or transfer of non-equity or debt mutual funds are taxable at 20% with indexation benefit.
Ans: Property sold in India is generally subject to a tax deduction. If the property is a short-term asset, the buyer of the property must deduct taxes at the rate according to the NRI’s income slab. If the property is a long-term asset, 20% Long Term Capital Gains tax applies. Further, the NRI must make sure that the tax is deducted on the capital gains made and not on the entire sale proceeds. He can take the help of a jurisdictional Assessing Officer to calculate the gains on which taxes should be levied by the purchaser.
Ans: If making capital gains out of selling housing property, one must be fully aware of the following exemptions:
- The taxpayer can deduct expenses like brokerage or commission, cost of stamp papers
- From the total sale price of the asset, travelling expenses from his total profit earned.
- Section 54: Exemption on Sale of House Property on Purchase of another House Property
- Section 54EC: Exemption on sale of house property on reinvesting in specific bonds
- Section 54F: Exemption on capital gains on the sale of any asset other than a house property
Ans: Long term capital gains are taxed at the rate of 20.8% (rate including health and education cess) with indexation.
Indexation means to adjust the price of the capital asset based on a standard index so that it becomes easier to factor in the rate of inflation while calculating the profits earned by the seller while selling the asset. Indexing helps in retrieving a reasonable figure, especially in case of long-term capital gains taking inflation into account.
So, the benefit of indexation is available, and the person who falls in the tax bracket of 30% also get the advantage of paying the lower tax rate of 20%. Long term capital gains are calculated in the same way as short-term capital gains. Still, the indexed cost of acquisition and indexed cost of improvement replaces the purchase cost and cost of the improvement.
Ans: Yes, the capitals gains arising from the sale of the property can be invested in housing property, equity funds, specific bonds, and other properties, which will be taxable as per the slabs prescribed by the Income Tax Act of India.
Ans: Gold/Jewellery falls in the Movable Property. If the sale of the jewellery is made in less than three years of acquisition, it will fall under the Income Tax Slab rate, and if it is more than three years, then it will have the benefit of the taxable rate of 20.8% with indexation.
Ans: There are certain exceptions of property and assets that do not fall in the capital asset category like Agricultural Land in the rural area, Personal items like furniture, clothes, etc. trade stock, Gold deposit schemes for example 6.5% Gold bonds or National Defence Gold Bonds issued by the central government, special bearer bonds in India and gold deposit bonds or certificates issued under Gold Monetisation Scheme 2015.
Ans: Usually, when the capital gains fall under the short-term gain calculator, they are under the income tax slabs, which are consequently higher than the capital gains tax calculator.