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How Is Long Term Capital Gain From House Property Calculated?

We all are aware of the fact that the real estate investments provide better returns over long term. Still, we should know how to save tax on long term on capital gain from house property sale. There are various options for tax exemptions.

What is long term capital gain from House property?

If the property purchased is sold out in less than 3years then it is considered as short term capital gain, whereas if the property purchased is sold out after 3 years, then it is considered as a long term capital gain. On long term capital gain the tax rate is charged 20%.

Calculation of Long term capital gain:

Long term capital gain is not just calculated by simply finding the difference between the sale value and a purchase value. The value of money ten years back is not same as today. So indexation is carried out while calculating the capital gains on property sale. Thus the indexation is done by computing the past value to the present value by considering the cost inflation year to year. The cost inflation index needs to be referred to arrive at the present value of the past investments.

E.g. If you have purchased a property in the year 1996 for Rs. 20 Lakhs and sold the same for Rs. 60 Lakhs in the year 2013, the value of CLL in 1996-1997 was 381 and that in the year 2012-2013 was 885. Hence the present value after indexation is 20 lakhs X 885/381= Rs. 46 Lakhs (approximately). The long term capital gain on the house property is the difference between the sale value and the indexation rate thus calculated. Thus the capital gain would be 60 lakh minus 46 lakh which comes out to be 14 Lakh (approx). Income tax on this would be 20% i.e 14 lakhs X 20%= Rs. 280,000.

Profits emerging from the transfer of a capital asset made in a previous year is taxable . The important constituent for capital gains are, therefore, existence of a capital asset, transfer of such capital asset and profits or gains that arise from such transfer.

Tax Law on Sale of Land:

Gain from sale of non-agriculture land is taxable as capital gain. Gain from sale of agriculture land is taxable only if it is located within 8 kilometers from the urban limits.

If in case the immovable property transferred is a residential house and if out of the capital gains a new residential home is constructed within 3 years, the exemption on long term capital gain is available on the amount of investment in the new asset to the extent of the capital gains.