Income Tax

Capital Gains Tax on Sale of Property/ Jewellery

Every person owns some assets in the nature of property, gold or shares. It is important to be aware of the tax involvement in the gain/loss arising from the sale of such assets. The tax liability on the sale of property, jewellery and shares depends on the asset’s holding period and is computed under the head ‘Capital Gains’.

What are Capital Gains?

Profit or gain from the sale of assets such as property, shares or jewellery is called capital gain. It is divided into two categories: Long Term Capital Gain and Short Term Capital Gain.

Long-Term Capital Gain

When you sell an asset after holding it for greater than 12/24/36 months (depending on the type of asset), the profit arising from the sale will be termed as Long-term capital gain (LTCG).

Short-Term Capital Gain

If an asset is to be sold within a certain holding period from the date of its acquisition, then it is called a short-term capital gain (STCG). For example, if you sell a house within 24 months of acquiring it, the profit will be termed STCG. The categorisation of long-term and short-term capital gain is separate in the case of shares/mutual funds. For listed shares and equity-oriented mutual funds, a long-term capital gain arises if they are sold after holding it for at least one year and a short-term capital gain if sold within one year.

Tax Rate Applicable to Income from Sale of Assets

Asset	Holding Period of Asset		Tax Rate
	Short-Term	Long- Term	Short-Term	Long-Term
Immovable Property	Less than 2 years	More than 2 years	Income Tax Slab Rate	20.8% with indexation
Movable Property such as gold or jewellery	Less than 3 years	More than 3 years	Income Tax Slab Rate	20.8% with indexation
Listed Shares	Less than 1 year	More than 1 year	15.60%	LTCG up to INR 1 lakh- non-taxable. LTCG more than INR 1 lakh – 10% without indexation.
Equity-oriented mutual funds	Less than 1 year	More than 1 year	15.60%	LTCG up to INR 1 lakh- non-taxable. LTCG more than INR 1 lakh – 10% without indexation.
Debt-Oriented Mutual Funds	Less than 3 years	More than 3 years	Income Tax Slab Rate	20.8% with indexation.

Tax rates stated above are excluding a surcharge at 10% on income between INR 50 lakh and INR 1 crore and at 15% on income above INR 1 crore. It is applicable only through shares sold through stock exchanges in India to those on which a security transaction tax (STT) is paid.

• The Long-term capital gains tax on gold and silver jewellery is 20%

Add: surcharge rate

Add: 4% along with indexation

• The Short-term capital gains tax on gold and silver is taxed at normal slab rates.
• The Long-term capital gains tax on property is 20%

Add: surcharge rate

Add: 4% along with indexation

• Short-term capital gains tax on gold and silver jewellery is charged at a normal slab rate.

Calculation of Tax on Short-term and Long-term gains from the sale of assets

Short-term Capital Gain/Loss

The income Tax Slab rate is levied for the calculation of short-term capital gains, which are taxed as per the rate applicable to the individual. For example, if the short-term capital gain is INR 6 lakh and the person falls in the 30% tax bracket, then he or she has to pay 31.20% on INR 6 lakh, which would amount to INR 1,87,200. Gain or loss from the sale of the asset is calculated by subtracting the cost incurred for improvement of the asset, the cost of purchase, and expenses incurred exclusively in relation to the sale arising from the sale proceeds of the asset.

Short-Term Capital Gain = Sale Consideration Less: Cost of Acquisition Less: Cost of Improvement  Less: Expenses incurred exclusively for the sale of the Asset.

Exception

A short-term capital gain arises from listed shares/equity-oriented mutual funds if it is sold within one year; it will be taxable at the rate of 15.60% inclusive of health and education cess @4%. In case of the sale of unlisted shares, it will be subject to tax as per the income tax rate applicable to the individual.

Long-term Capital Gain/Loss

Long-term capital gain is chargeable to tax at the rate of 20.8% with indexation (including health and education cess @4%). Indexation is a technique to adjust the cost of an asset according to the inflation index. It increases the cost and reduces the gains and, thereby, the tax liability. So, under long-term capital asset, the merit of indexation is available if the person who falls in the tax bracket of 30% also gets the benefit of paying the lower tax rate of 20%. In some ways, the long-term capital gain is calculated as short-term capital gain, but the purchase cost and cost of the improvement are restored with the indexed cost of acquisition and indexed cost of the improvement. 

Long-Term Capital Gain = Sale consideration Less: the indexed cost of acquisition Less: the indexed cost of the improvement Less: Expenses incurred exclusively for the sale of the Asset Less: Exemption u/s 54, 54F, 54EC if any availed.

The following formula can be used for calculating the indexed cost:

Indexed Cost of Acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year of sale ÷ CII of the year in which the property was held for the first time or FY 2001-2002, whichever is later.

Note:

If the property was acquired prior to 1^st April 2001, in such a case, the real cost of the property or the FMV of the property as of 1^st April 2001, as preferred by the taxpayer, should be treated as cost of acquisition.

Indexed Cost of Improvement = Cost of Improvement * CII of the year or sale ÷ CII of the year in which improvement took place.

Note: Costs of improvement incurred prior to FY 2002-02 should not be considered.

Exception

Before, in cases of Listed Shares/equity-oriented mutual funds, long-term capital gain (if sold after one year) was exempt. But, it applies only to the shares listed on the Indian Stock Exchange¹, whether an Indian company or a foreign company. The shares should be sold through the Indian stock exchange platform only.

Conclusion

In summation, it can be said that for every individual holding assets, it is important to understand its taxability, whether as short-term capital gains or long-term capital gains. Then, apply the relevant method for calculating the tax liability.

FAQs

1. https://en.wikipedia.org/wiki/Indian_stock_exchange