How to calculate the capital gains tax on the sale of a house?

K. ARAVIND

The Cost Inflation Index is a measure of the value of an asset based on inflation. Interest earned on fixed deposits etc. is taxable including gross income. At the same time, long-term capital gains from real estate, gold, and debt funds are calculated based on the Cost Inflation Index.

 

For example, if the debt funds were sold more than three years ago, the capital gains would be included in the income and taxed according to the tax slab. At the same time, if the sale is made after three years, a tax of 20 per cent is levied on the amount received in excess of the present value calculated as per the Cost Inflation Index of the previous investment.

 

If the house or other building or land is sold before the completion of two years after purchase, the capital gain should be added to the income and taxed according to the levy slab. At the same time, if the sale is made after two years, a tax of 20 per cent of the proceeds on long-term capital gains is payable.

 

To calculate the long-term capital gains from the sale of an asset, the current value must be calculated according to the Cost Inflation Index. For example, suppose you bought a house in 2004-05 for Rs.30 lakhs. In 2019-20, this house may have been sold for Rs.80 lakh. Knowing the Cost Inflation Index for 2004-05 and 2019-20, real capital gains can be calculated. The Cost Inflation Index for each year is available on the website www.incometaxindia.gov.in. The base year of the Cost Inflation Index has been changed from the financial year 2017-2018 to 1981 to 2001.

 

The investment value based on the Cost Inflation Index is obtained by dividing the Cost Inflation Index for the year of sale by the Cost Inflation Index for the year of purchase and multiplying the amount received by the investment.

 

The Cost Inflation Index when the house was bought in 2004-05 was 113, and the Cost Inflation Index 289 for the current fiscal year in which the sale took place. Rs.30,00,000 X (289/113) = Rs.76,72,566 is the current value of your home. You can find out what your long-term capital gain is by deducting it from the sale price. That is, Rs.80,00,000-76,72,566 = Rs 3,27,434 is your long-term capital gain. You have to pay 20% of this amount as long term capital gains tax. That means the long-term capital gains tax you have to pay will be Rs.65,486.8.