Capital Gains Tax Filing

This plan is for you if you have incurred a profit or a loss from the sale of property, equity shares, mutual fund units, units of business trusts, bonds in addition to salary/business income and need to file the tax returns after taking the same into consideration with any other income as applicable

About This Plan

This plan is not for intra-day or derivative traders.

Timeline

It usually takes 1 to 2 working days.

Starts INR 1500/-

Services Covered

Who Should Buy

How It's Done

Documents Required

Services Covered

Income Tax Filing for Capital Gains from Sale of Stocks, Equity, Mutual Funds, Property & any other assets.
Income from Gain from Lotteries, Gaming & Other activities.

Who Should Buy

Salaried Individuals
Freelancers
Financial Traders
Business owners
Salaried Employees with ESOP/RSU in domestic/multinational companies

How It's Done

Purchase of plan
Share your Documents
Session with TAXAJ Expert
Sharing of Computation for Approval
Filing of Tax Return

Documents Required

All Form 16 Part A & B from your Companies
Form 26AS Tax Credit Statement
PAN & Aadhar Card
Income Tax Login Credentials
Bank statement if interest received is above Rs. 10,000/-
Salary Slip of any month during the Financial Year
Bank Account Number, IFSC Code
Any Other Income or Investment Proofs that hasn't been declared or mentioned in Form 16.
Details of Capital gains such as Statement of Equity, Stocks or Mutual Funds.
For Property Transactions Sale & Purchase Deed, clearing mentioning Date & Value of Purchase & Sale along with Co-Owner.

Capital Gains Basics explained here in this video!

How to save Tax on Capital Gains Transaction

Q. What is Capital Gain tax in India?

Simply put, any profit or gain arising from the sale of a ‘capital asset’ is called capital gain. This gain or profit is called ‘income’, and hence you will have to pay tax for that amount in that particular year in which the transfer of the capital asset takes place. This tax is called capital gains tax, which can be short-term or long-term. Capital gains do not apply to an inherited property as there is no transaction but only a transfer of ownership from one family member to another. The Income Tax Act has specifically exempted all the assets received as gifts by way of an inheritance from elders or as a will. However, if the kin or ward who inherited the asset or property decides to sell it, it will be a monetary transaction; thus, capital gains tax will apply.

Q. What are the Type of Capital Assets?

1. STCG ( Short-term capital asset) is an asset held for 3 years or less. The criteria of 3 years have been reduced to 2 years for immovable properties such as land, building and house property from FY 2017-18. For example, selling a house property after holding it for 2 years, the profit occurred will be long-term capital gain provided that property is sold after 31st March 2017.

2. LTCG (Long-term capital asset) An asset held for more than 36 months is a long-term capital asset. The reduced period of the previous 24 months does not apply to movable property such as debt-oriented mutual funds, jewellery, etc. They will be termed as a long-term capital asset if held for more than 3 years as earlier. Some assets are short-term capital assets when held for a year or less. This rule applies when the date of transfer is after 10th July 2014 (irrespective of the date of purchase).

The assets are:

a. Equity or preference shares in a listed company.

b. Private & Govt Securities (like debentures, bonds, govt securities etc.) of a listed company.

c. Units of Unit Trust of India.

d. Units of an equity-oriented mutual fund, whether quoted or not.

e. Zero-coupon bonds, whether quoted or not

When the above-listed assets are held for more than 12 months, they are considered long-term capital assets. If an asset is acquired by gift or will or succession or inheritance, the period the previous owner held the asset also matters to determine if it’s a short term or a long-term capital asset. In the case of rights shares or bonus shares, the holding period is counted from the date of allotment respectively.

Q. What are the Capital Assets?

Capital assets are Land, building, trademarks, leasehold rights, house property, vehicles, patents, machinery, and jewellery are a few examples of Capital assets that include having rights in an Indian company. It also consists of management rights & legal rights of any sort.

The following can not be classified as capital assets:

a. Any consumables or raw material held for a business, profession, or other stock(not shares).

b. Clothes and furniture of Personal goods held for personal use only.

c. Agricultural or cultivable Land in villages.

d. Certain bonds issued by the central government such as national defence gold bonds (1980) or 7% gold bonds (1980) or 6½% gold bonds (1977).

e. Special bearer bonds of (1991)

f. Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015

Definition of rural area (from AY 2014-15) – Any area outside the jurisdiction of a municipality or cantonment board, having a population of 10,000 or more, is considered a rural area. Also, it should not fall within a distance (to be measured aerially) given below – (population is as per the last census).

Distance	Population
2 kms from local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 10,000 but not more than 1 lakh
6 kms from local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 1 lakh but not more than 10 lakh
8 kms from local limit of municipality or cantonment board	If the population of the municipality/cantonment board is more than 10 lakh

Tax on Short Term & Long Term Capital Gains?

Tax Type	Condition	Tax applicable
Long-term capital gains tax	Except on sale of equity shares/ units of equity oriented fund	20%
Long-term capital gains tax	On sale of Equity shares/ units of equity oriented fund	10% over and above Rs 1 lakh
Short-term capital gains tax	When securities transaction tax is not applicable	The short-term capital gain is added to your income tax return and the taxpayer is taxed according to his income tax slab.
Short-term capital gains tax	When securities transaction tax is applicable	15%.

Tax on Equity & Debt Mutual Funds

Gains made from selling debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund.

Funds	Effective 11 July 2014	On or before 10 July 2014
Short-Term Gains	Long-Term Gains	Short-Term Gains	Long-Term Gains
Debt Funds	At tax slab rates of the individual	At 20% with indexation	At tax slab rates of the individual	10% without indexation or 20% with indexation whichever is lower
Equity Funds	15%	10% over and above Rs 1 lakh without indexation.	15%	Nil

Change in Tax Rules for Debt Mutual Funds

Debt mutual funds held for more than 3 years is long-term capital assets. That's why people remain invested for at least three years to get the benefit of long-term capital gains tax. If redeemed within three years, the capital gains will be added to your income and will be treated as per your income tax slab rate.

Calculating Capital gains

Capital gains are calculated differently for assets held for a longer period and for those held over a shorter period.

Terms you need to know:

Total value consideration The consideration received or received by the seller against capital assets. Capital gains are chargeable to tax in the transfer year, even if consideration has not been received.

Cost of acquisition: The value at which the seller acquired the capital asset.

Cost of improvement: Capital nature expense incurred in making any additions or alterations to the building or capital asset by the seller. It is to be noted that any modifications made before April 1, 2001, are never considered.

Note: In some instances where the capital asset becomes the taxpayer's property other than the taxpayer's purchase, the cost of acquisition and improvement incurred by the previous owner would also be included.

Q. How to Calculate Short-Term Capital Gains?

Step 1: Start with the total value of consideration

Step 2: Deduct the following:

👉 Expenditure incurred wholly and exclusively in connection with such transfer.

👉 Cost of acquisition

👉 Cost of improvement

Step 3: This amount is a short-term capital gain.

Short term capital gain

= Full value consideration

Less expenses incurred exclusively for such transfer

Less cost of acquisition

Less cost of the improvement.

Indexed Cost of Acquisition/Improvement

Indexed Cost of acquisition is calculated as Cost of acquisition / Cost inflation index (CII) for the year the seller first held the asset, or 2001-02, whichever is later X cost inflation index for the year in which the asset is transferred. Cost of acquisition and improvement is indexed by applying CII (cost inflation index). It is done to adjust for inflation over the years of holding of the asset. This CII increases one’s cost base and lowers the capital gains. Refer to this page for the complete list of CII.

Indexed Cost of improvement is calculated as:

Indexed Cost of acquisition = Cost of acquisition (*multiply) Cost Inflation Index (CII) of the year in which the asset is transferred / Cost inflation index (CII) of the year in which the seller first held or 2001-02 whichever is later.

Indexed cost of improvement = Cost of improvement (*multiply) Cost inflation index of the year in which the asset is transferred / Cost inflation index of the year in which improvement took place

What is the right time to invest in Capital Gains Account Scheme?

Finding a seller, arranging funds and getting the paperwork done for a new property is one hell of a task to complete & it's also a time-consuming process. Considering all these points, the Income Tax Department agrees with these limitations. Suppose capital gains have not been invested till the ITR filing date (e.g. 31st of July generally) of the financial year in which the property is sold. In that case, you can deposit the capital gains as per the Capital Gains Account Scheme, 1988, in any PSU bank. This way, the deposit can be claimed as an exemption from capital gains taxation. However, if the money is not invested, the deposit shall be treated as short-term capital gains for the year in which the specified period lapses.

Saving Tax on Sale of Agricultural Land

In most cases, capital gains received from the agricultural land sale is entirely exempt from income tax as it's not their business but a side income, so it is not labelled as capital gains.

a. Agricultural land in a village or rural area is not considered a capital asset. Thus gains from its sale are not taxable. For details on what defines agricultural land in a rural area, see above.

b. Do you hold agricultural land as stock-in-trade? If your business is about buying and selling agricultural land, then any gains from the land sale are taxable under the head of Business and Profession.

c. Capital gains on compensation received for compulsory acquisition of urban agricultural land are tax-exempt under Section 10(37) of the Income Tax Act.

If you could not sell agricultural land in any of these cases, you could seek exemption under Section 54B.

Section 54B: Exemption on Capital Gains From Transfer of Land Used for Agricultural Purpose

When you sell the land used for agricultural purposes, you make short-term or long-term capital gains from the transfer – by an individual or the individual’s parents or Hindu Undivided Family (HUF) – for 2 years before the sale. The exemption is available under Section 54B. The exempted amount can be invested in a new asset or capital gain, whichever is lower. You must reinvest into a new agricultural land within 2 years from the sale of land. The new agricultural land as purchased with the capital gain, to claim exemption, should not be sold within 3 years from its purchase. Suppose you can not buy agricultural land before the ITR filing date. The capital gain amount must be deposited in a PSU bank or IDBI Bank according to Capital Gains Account Scheme guidelines, 1988. The exemption shall be claimed for the amount which is deposited. Suppose the amount deposited as per Capital Gains Account Scheme was not used to purchase agricultural land. In that case, it should be treated as capital gains of the year in which 2 years from the date of land sale expires if you wish to know more about investment choices with good capital gains potential.

Q. How to Calculate Long-Term Capital Gains?

Step 1: Start with the total consideration value.

Step 2: Deduct the following transactions:

👉 Expenditure incurred wholly and exclusively in connection with such transfer.

👉 Indexed Cost of acquisition
👉 Indexed Cost of improvement

Step 3: From this resulting number, deduct exemptions provided under sections 54, 54EC, 54F, and 54B

Long-term capital gain=

"Full value consideration

Less: Expenses incurred exclusively for such transfer

Less: Indexed Cost of acquisition

Less: Indexed Cost of improvement

Less: expenses that can be deducted from total consideration value* (*Expenses from sale proceeds of a capital asset that relate to the sale or transfer of the capital asset are allowed to be deducted. These are the necessary expenses for transfer.)

As per the 2018 Budget, long term capital gains on the sale of equity shares/units of equity-oriented funds, realised after 31st March 2018, will remain exempt up to Rs. 1 lakh/annum. Moreover, 10% tax will be levied only on LTCG on shares/units of equity-oriented funds exceeding Rs 1 lakh in a financial year without indexation benefit.

These expenses are deductible from the total sale price:

a. Brokerage or commission paid for securing a purchaser

b. Cost of stamp papers

c. Travelling expenses in connection with the transfer may be incurred after the transfer has been affected.

d. Where a property has been inherited, some extra expenditure incurred can also be allowed concerning procedures associated with the will and inheritance, costs of the executor, obtaining succession certificate, in some cases.

In the case of the sale of shares: You may be allowed to deduct certain more expenses:

a. Broker's commission.

b. STT or securities transaction tax is not allowed as a deductible expense

Where jewellery is sold: a broker's services fee can be deducted.

Note: The expenses deducted from the Asset's sale price for calculating capital gains should not be allowed as a deduction under income tax return's any other head, and you can claim them only once.

Exemption on Capital Gains

Example: Aashima bought a house in July 2004 for Rs 50 lakh, and the total value received in FY 2016-17 is Rs 1.8 crore. As the Property is held for more than 3 years, it's a long-term capital asset. The cost price is now adjusted for inflation, and the indexed cost of acquisition will be taken. By using this indexed cost of acquisition formula, the adjusted cost of the house is Rs 1.17 crore. The net capital gain is Rs.63,00,000/- Long-term capital gains will be tax treated at 20% rate. For a net capital gain of Rs 63 Lakhs, the total tax outgo will be Rs 12,97,800. This Total tax is a significant amount of money to be paid out in taxes & can be lowered by taking multiple benefits of exemptions provided by IT Department on capital gains when profit gained is reinvested into buying another asset.

Section 54: Exemption on Sale of House Property on Purchase of Another House Property

The exemption under section 54 is considered when the capital gains from a property sale are reinvested into buying or constructing two other house properties (before Budget 2019, the exemption of the capital gains was limited to only one house property). The exemption on two properties will be allowed once in a taxpayer's lifetime, provided the capital gains remains less than Rs. 2 crores. The taxpayer must invest the capital gains amount and not the entire sale proceeds. Suppose the purchase price of the new property is higher than the amount of capital gains. In that case, the exemption shall be limited to the total capital gain on the sale—conditions for availing of this benefit.

1. The new property purchase date should be either 1 year before the property sale or 2 years after the property sale.

2. The gains can be invested in constructing a property, but construction must be completed in not more than three years from the sale.

3. In the 2014-15 Budget, it was clarified that 1 house property could be purchased or constructed from the capital gains to claim the exemption.

4. Please note that the exemption can be withdrawn if this new property is sold within 3 years of its purchase/completion of construction.

Section 54F: Exemption on Capital Gain on Sale of any asset other than a House Property

Exemption under Section 54F is considerable when capital gains are from the sale of a long-term asset other than a house property. To claim this exemption, you must invest the entire sale consideration and not only capital gain to buy a new residential house property. New property Purchases should happen either a year before the sale or within 2 years after the sale of the said property. You can use the Gains from the sale of the property to invest in constructing a property. However, the new investment property construction must be completed within three years from the sale date. Budget 2014-15 mentioned that only 1 house property could be purchased or constructed from the consideration of sale to claim this exemption. This 54F exemption can be withdrawn if this new property is sold off within 3 years of its purchase date. If the entire amount from sale proceeds are invested towards the new house, the whole capital gain will be exempt from taxes, provided that you meet the above-said conditions. However, invest a portion of the sale proceeds. The capital gains exemption will be the proportion of the invested amount to the sale price = capital gains x cost of new house /net consideration.

Section 54EC: Exemption on Sale of House Property on Reinvesting in specific Bonds.

The exemption is available under Section 54EC when capital gains from the first property sale are reinvested into specific bonds.

👉 If you do not want to reinvest your profit from the sale of your first property into another property, you can invest them in bonds for up to Rs. 50 lakhs issued by the N.H.A.I. Rural Electrification Corporation.

👉 The money invested can be redeemed only after 3 years, as you can not sell the bond before the tenure of 3 years from the date of sale. With effect from the F.Y. 2018-2019, the period of 3 years has been increased to 5 years;

👉 The homeowner has six months to invest the profit in these bonds. But to claim this exemption, you will have to invest before the tax filing deadline.

Exemptions on Long Term Capital Gains Tax

Individuals are exempted from paying tax if annual income does not reach a predetermined limit(defined each year in the financial budget). The Tax exemption limit rises almost every year, so for FY 2019-2020 following are the guidelines:

Individuals with annual income below Rs. 5,00,000 and above 80 years of age will be exempted if their:
Residential Indians between 60 to 80 years will be exempted from long-term capital gains tax in 2021 if they earn Rs. 3,00,000 per annum.
For individuals 60 years or younger, the exempted limit is Rs. 2,50,000 every year.
Hindu Undivided Families can enjoy tax exemption if the annual income of their family is under Rs. 2,50,000.
For non-residential Indians, the exempted limit is flat Rs. 2,50,000/- irrespective of the age of the individual.

Individuals cannot earn any tax deduction under Section 80C to 80U from long-term capital gains tax in India.

Tax Type	Condition	Tax applicable
Long-term capital gains tax	Except on sale of equity shares/ units of equity oriented fund	20%
Long-term capital gains tax	On sale of Equity shares/ units of equity oriented fund	10% over and above Rs 1 lakh
Short-term capital gains tax	When securities transaction tax is not applicable	The short-term capital gain is added to your income tax return and the taxpayer is taxed according to his income tax slab.
Short-term capital gains tax	When securities transaction tax is applicable	15%.

Tax Rate Chart for Income on Sale of Assets

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Asset	Duration of the Asset	Tax Rate
	Short-Term	Long-Term	Short-Term	Long-Term
Immovable Property, e.g. House property	Less than 2 years	More than 2 years	Income tax slab rate	20.8% with indexation
Movable Property, e.g. Gold/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%	Exempt
Equity-Oriented Mutual Funds	Less than 1 year	More than 1 year	15.60%	Exempt
Debt-Oriented Mutual Funds	Less than 3 years	More than 3 years	Income tax slab rate	20.8% with indexation

Frequently Asked Questions:

Q. Is the benefit of indexation available for computing capital gains arising on sale of a short term capital asset?

Capital gains are calculated by reducing the purchase price from the sale price of the assets. However, for some assets that have been held for a comparatively long time, it will be inappropriate to determine gains by simply reducing purchase price from sale price without affecting inflation. Hence, the concept and rules of indexing the purchase price have been brought in. This way, the indexed purchase price is reduced from the sale price to calculate gains. So, indexation applies only if the asset has been held for the long term.

Q. Should an NRI pay taxes on gains made on the sale of property in India?

The sale of Property is subject to a tax deduction here. The purchaser must deduct taxes at the applicable rate to NRI’s income slab if the Property falls in a short term asset category. But if the Property is a long term asset, 20% LTCG tax applies. Further, the NRI needs to ensure that taxes are deducted on the gains made and not on the sale proceeds. A jurisdictional Assessing Officer can help determine the gains on which the purchaser should deduct taxes.

Q. Can I set off my short term capital loss against any other head of income?

Firstly, you can set off capital losses against capital gains only. Accordingly, short term capital losses can be set off against any income under capital gains, be it short term or long term. However, long term capital losses can be set off only against long term capital gains.

Q. What is the rate of tax on long term capital gains on sale of house property?

Long Term Capital Gains on sale of house property is taxable at the rate of 20% flat on the quantum of gains made

Q. Are all assets held for less than 36 months short term and those held for more than 36 months long term capital assets?

There are different assets that have different periods of holding to be called short term and long term. Here is a table that defines the period of holding for other classes of an asset to be classified as short term or long term.

Asset	Period of holding	Short Term / Long Term
Immovable property	< 24 months	Short Term
>24 months	Long Term
Listed equity shares	<12 months	Short Term
>12 Months	Long Term
Unlisted shares	<24 months	Short Term
>24 months	Long Term
Equity Mutual funds	<12 months	Short Term
>12 months	Long Term
Debt mutual funds	<36 months	Short Term
>36 months	Long Term
Other assets	<36 months	Short Term
>36 months	Long Term