Income under the Income tax act is classified into 5 heads, out of these 5 heads computation of income under capital gains requires the application of relevant rules relating to valuation, period of holding, ownership, etc. Capital gains are one of the areas where there are numerous issues giving rise to differences in the treatment of income between departments and the taxpayer. We help you to save tax on capital gains with prescribed investments and exemptions.
What is a capital gain in the Income tax act?
Capital gain means income arising from the transfer of capital assets, the nature of capital gain is classified into long-term capital gain and short-term capital gain depending on the period of holding by the assessee. The most common type of capital gain is capital gain on the transfer of immovable property, such as land or land with a building, capital gain on the transfer of shares, and capital gain on the sale of mutual fund units. The primary purpose of classification into long-term or short-term gain is to identify rates of taxes that are applicable for long-term and short-term capital gains.
How is capital gain tax calculated?
Calculation of capital gain involves computation of sale consideration, cost of acquisition, expenses incurred in connection with the transfer or sale of the asset, and expenses incurred for the purchase of an asset. Indexation is applied in the case of certain long-term assets where the cost of acquisition is inflated to match the price effects of inflation. Once all these values are computed as per the rules, gross capital gain are arrived, the exemption or deduction available depending on the period of holding is reduced to arrive at net capital gains. Tax is now calculated at the relevant rates applicable for long-term or short-term capital gain for the relevant financial year.
Details required for capital gains return filing and tax savings?
- Sale deed, allotment letter, and contract note for getting details regarding purchase price, sale price, and calculation of the period of holding
- Details if investments made of proposed to be made for capital gains savings.
- Details of financial transactions relating to capital gains.
- Income tax login details.
- Details of other income.
- Details of the buyer in case of immovable property is transferred.
Steps to Register
Working out of capital gains
Income tax return filing
Advisory for capital gains exemption conditions
What are important points that should be considered in capital gains calculation and tax savings
Cost of Acquisition and Cost of Improvement
- Determination of the cost of acquisition is a vital part that determines the amount of capital gain and tax liability on the sale of the property.
- Where property is acquired on or before 1st April 2001 the cost of acquisition shall be higher than the fair market value as of 1st April 2001 or the cost of acquisition whichever is higher, the fair market value shall not be higher than the stamp duty value. Thus, it is important to get data on the stamp duty value of the property as on 1st April 2001 apart from the data available with us. However, if the actual cost is higher than fair market value, then there is no restriction on the application of actual cost as the cost of acquisition.
- Cost of improvement incurred on or after 1st April 2001 only shall be considered only if the asset is acquired on are after 01-04-2001 from the previous owner for the transactions referred U/s 49(1), where the asset acquired on or before 01-04-2001 cost of improvement incurred after the date of acquisition can only be considered.
- If the asset is classified as a long-term capital asset, then the benefit of indexation is applicable and the cost of acquisition is indexed with the applicable index value for the year to cover the cost of inflation for the period during which the property is held.
- Where the property is inherited, the cost of acquisition shall be the original cost to the previous owner, period of hold shall include the period of holding by the previous owner from whom the property is inherited.
- Net sale consideration is calculated after deductions of all expenses such as brokerage paid, cost incurred to clear any issues, legal charges for verification of documents, documentation charges, etc.
- Where the actual sale consideration is higher than the stamp duty value the actual sale value will be taken, if the actual sale consideration is lesser than the stamp duty value then stamp duty is taken for purpose of calculation of capital gains.
- It is wise to plan in advance in case if you plan to sell the property because, in case of certain exemptions, investment is allowed prior to the sale of the property and the same shall be claimed as an exemption.
- In the case of a capital gain on account of a long-term capital asset, there are different options for claiming capital gain exemption as compared to short-term capital assets.
- In case the taxpayer fails to comply with the condition of exemption in the future, the exemption already granted will be revoked and tax already saved on account of exemption shall be payable with applicable interest.
From Auditor DESKCapital gains should be computed with the right data and correct application of relevant income tax provisions for proper compliance. At Chennai registration consultants, attention to every detail shall be given, we provide professional consultation and capital gain income tax return filing services with utmost reliability.
Frequently Asked Questions
We make it easy for you to find the answer to frequently asked questions here...
U/s 139(5) can be filed for capital gain income if there is any mistake or omission in the return filing date, revision of capital gain income shall be done with due care where there is a reduction in the amount of tax payable, or reduction in capital gain amount, or increase in exemption amount.