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Tata Capital > Blog > How to Calculate Capital Gains on Property

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How to Calculate Capital Gains on Property

How to Calculate Capital Gains on Property

Capital gain is a process in which an individual gains a net profit by the selling of a capital asset such as gold, property, land plots, etc. The value of the profit earned by selling a capital asset comes under taxable income. If you are someone who dabbles in real estate or wants to sell a property like a house, building, plot of land, etc. then this article will help you in understanding how to calculate capital gains on property.

Property is inherited, bought, or acquired as a gift. In the case of inheritance or property gifted to you by someone, the capital gains on its sale are not considered as taxable income. Capital gains over property are of two types:

  • Long-term capital gains: The capital gain earned by the sale of a property after holding it for over 24 months.
  • Short-term capital gains: The capital gain earned by the sale of a property after holding it for less than 24 months.

Know these terms to calculate capital gains on property

Before learning the formula to calculate capital gains, you need to understand the meanings of the keywords used.

  • Full value of consideration: This is the full value received by an individual upon selling their property. It may be in cash or kind.
  • Sale value: The amount received by an individual when he/she sells the property.
  • Cost of acquisition: this is the cost at which the property was acquired by the individual.
  • Cost of improvement: These are the expenses incurred by an individual while doing the replenishment, renovation or any alteration to the property. It includes the costs of maintaining the property.
  • Cost inflation index (CII): The CII is fixed and determined by the government of India every year. For the Financial Year 2019-20, it was set as 289.
  • Indexation: It is the process of adjusting prices by taking inflation into account.

Additional Read: How are Capital Gains Taxed in Real Estate?

How to calculate capital gains on property

After briefly understanding the meaning behind the various keywords, you can calculate capital gainson your property. Given below are the formulas required to accurately calculate capital gains.

  • To calculate long-term capital gains, the following formula is used: Long-term capital gain= full value of consideration- (indexed cost of acquisition + indexed cost of improvement + indexed cost of sale/transfer) The rate at which capital gains tax is calculated is variable from year to year.
  • To calculate short-term capital gains, the following formula is used: Short-term capital gain= full value of consideration- (cost of acquisition + cost of improvement + cost of sale/transfer) The capital gains tax rate for short-term gains depends on the individual’s tax slab.

Additional Read: How Budget 2020 Affect the Real Estate Sector?

In summation

Want to sell your old property but confused about the variables? Tata Capital is here to help you out with calculating your capital gains and providing expert opinions on the best time to sell. Ensure that you prepay your existing home loans before selling that house. Visit our website and contact us to make an informed decision.

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