Capital Gains on property and other investments

Capital Gains is calculated by using the following formula:

Capital Gain on sale of Equity Shares: Capital gains is calculated by subtracting the purchase cost of the shares from the net sales value. Brokerage and other transaction costs related to sale of the shares is deducted from the gross sales value to calculate the net sales value. If the shares are sold within 12 months of purchase, then capital gains will be taxed at 15% (short term capital gains tax). If the shares are sold after 12 months of purchase, then capital gains is tax free (long term capital gains)

Capital Gain on sale of Equity Mutual Funds: The tax treatment is exactly the same as equity shares. For systematic investment plan, the cost of purchase of units in each instalment has to be factored in the capital gains calculation. Units purchased in instalments less than 12 months before the sale of units will be subject to short term capital gains tax (15%). Capital gains in units purchased in instalments more than 12 months before the sale of units will be tax free.

Capital Gains on sale of Debentures: If debentures are sold on the stock exchanges then the incidence of capital gains will arise. If debentures are sold within 12 months of allotment then the capital gains, calculated by subtracting the purchase cost and brokerage from the sales consideration, will be added to income of the investor and taxed as per the income tax rate of the investor. If the debentures are sold after 12 months of allotment, then the capital gains will be taxed at 10.3% (including education cess).

Capital Gain on sale of Debt Mutual Funds: If units of debt mutual funds are redeemed within 36 months of purchase, then short term capital gains is calculated by subtracting the purchase cost from sales consideration. Short term capital gains is added to the income of the investor and taxed as per the income tax rate of the investor. If the units are redeemed after 36 months from the date of purchase then long term capital gains apply. Long term capital gains for debt mutual funds is calculated by subtracting the indexed cost of purchase from the sales consideration. The indexed cost of purchase is calculated by multiplying the actual cost of purchase with the ratio of cost of inflation index in the year of redemption and the year of purchase. Cost of inflation index table is published by the Reserve Bank of India and is available in the public domain. Long term capital gains for debt mutual funds is taxed at 20.6% (including education cess) after indexation.

Capital Gain on sale of Property: Capital gain on sale of house is calculated using the table above. Expenditure related to transfer or sale may include advertisement, brokerage, stamp duty, registration and legal expenses related to the sale. The cost of improvement should include capital expense after the acquisition of the property and will exclude routine expenses like repairs, maintenance etc. If the property is sold within 36 months of the date of acquisition then the capital gains is added to the income of the investor and taxed as per the income tax rate of the investor. If the property is sold after 36 months of the acquisition then long term capital gains tax applies. Long term capital gains for property is taxed at 10.3% (including education cess) without indexation and 20.6% (including education cess) with indexation. The indexed cost of purchase, like in the case of debt mutual fund, is calculated by multiplying the actual cost of purchase with the ratio of cost of inflation index in the year of sale and the year of purchase.

Please note these are some broad guidelines with respect of capital gain from assets. You should consult with your CA for the actual capital gains calculation and tax impact.