Tax on Capital Gain : Calculation and Indexation

 




CALCULATION AND INDEXATION IN CAPITAL GAIN

How to calculate Capital Gain?

Capital Gain arising on transfer of a short-term capital asset is short-term capital gain, whereas transfer of a long-term capital asset is long term capital gain. The tax incidence is higher in case of short term capital gain in comparison to long term capita gain.

Short Term Capital Gain

Full value consideration: 

The consideration received or receivable by the assessee

as a result of transfer of the capital assets. Capital gains are chargeable to tax in the year of transfer, even if no consideration has been received. 

Cost of acquisition: 

The value for which the capital asset was acquired by the assessee. 

Cost of improvement: 

Capital expenditure incurred in making any additions or alterations to increase the value of the capital asset.

Ex.1 Mr. A purchases a house property for Rs.12,00,000 on May 01 ,2019. He spends Rs.1,00,000 for renewal/reconstruction of the property. Brokerage paid for securing a purchaser Rs.35,000.Mr.A sells the house property for Rs. 15,00,000 on March 15,2021. Determine the capital gain/loss for the assessment year 2021-22.

Solution:

Rs.

Full value of consideration or Sale Proceeds

15,00,000

Deduct:

Expenditure incurred wholly and exclusively in connection with such transfer

35,000

Cost of acquisition

12,00,000

Cost of improvement

1,00,000

13,35,000

Short Term Capital Gain

1,65,000

From this resulting sum deduct exemptions provided under sections 54B, 54D, 54G, and 54GA.

 

Long Term Capital Gain

Full value consideration: 

The consideration received or receivable by the assessee as a result of transfer of the capital assets. Capital gains are chargeable to tax in the year of transfer, even if no consideration has been received. 

Indexed Cost of acquisition:

Indexed Cost of acquisition is calculated as :

Cost of acquisition × Cost Inflation Index (CII) for the year in which the asset is    transferred

CII for the year in which the asset was first held by the assesse or previous owner (in case of an inheritance of the property) or 2001-02 , whichever is later

Indexed Cost of Improvement: :

Indexed Cost of improvement is calculated as :

Cost of improvement ×           CII for the year in which the asset is    transferred

          CII for the year in which the improvement took place

Cost Inflation Index (CII)

Financial Year

CII Number

2001-2002

100

2002-2003

105

2003-2004

109

2004-2005

113

2005-2006

117

2006-2007

122

2007-2008

129

2008-2009

137

2009-2010

148

2010-2011

167

2011-2012

184

2012-2013

200

2013-2014

220

2014-2015

240

2015-2016

254

2016-2017

264

2017-2018

272

2018-2019

280

2019-2020

289

2020-2021

301

2021-2022

317

Ex.2 Mr. A purchases a house property for Rs.3,50,000 on May 01, 1995. He spends Rs.1,00,000  and Rs.1,25,000 for renewal/reconstruction of the property on 1998-1999 and 2003-04 respectively. Brokerage paid Rs.35,000. Mr. A sells the house property for Rs. 20,00,000 on March 15,2021. Determine the capital gain/loss for the assessment year 2021-22.Fair Market Value of the property is on April 1,2001 is Rs.5,00,000.

Solution:

Computation of Capital Gain

 Rs.

 Rs.

Sales Consideration

          20,00,000

Less, Expense on transfer

         35,000

Indexed cost of Acquisition Note:1

    15,05,000

Indexed cost of Improvement Note:2

       3,45,183

            18,85,183

Long Term Capital Gain

                 1,14,817

Note:1 Indexed cost of Acquisition

Cost to the owner

            3,50,000

Fair Market Value as on April 01,2001

            5,00,000

CII for 2020-21

                      301

CII for 2001-02

                      100

Indexed cost of Acquisition

(Rs.5,00,000*301/100)

          15,05,000

Note:2 Indexed cost of Improvement

Cost of Improvement prior to April 01,2000

                         -  

(not to be considered)

Cost of Improvement incurred in 2003-04

             1,25,000

CII for 2020-21

                      301

CII for 2003-04

                      109

Indexed cost of Acquisition

(Rs.1,25,000*301/109)

              3,45,183

 

From this resulting sum deduct exemptions provided under sections 54,54B, 54D, 54EC, 54ED, 54EE, 54F, 54G, 54GA and 54GB.

 

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