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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.
Pricing:
₹5000
Steps to Register
Transaction analysis
Details regarding the transaction are collected to determine the nature of capital gain, period of holding, cost of acquisition, cost of improvement, sale consideration, expenses on account of the sale, etc.
1
Working out of capital gains
Capital gains are arrived at after considering all inputs received from the previous step, net capital gain is arrived after giving effect to capital gain exemptions.
2
Computation draft
The draft will be sent to the client for approval and tax payment if any will be made before filing the income tax returns.
3
Income tax return filing
Income tax capital gain return will be filed after approval from the client and payment of taxes to the government account, ITR filed will be e verified through Digital signature or Aadhaar validation.
4
Advisory for capital gains exemption conditions
The client will be advised regarding exemptions claimed and conditions that are required to be followed for capital gain exemptions, also advise will be given regarding situations that will lead to revocation of exemption
5
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.
Sale consideration
- 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.
Exemptions
- 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 DESK
Capital 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...
In order to claim any deductions or exemptions from the income of the assessee have to file an income tax return, filing of income tax returns is the only means to report the eligibility of exemptions or deductions to the income tax department. Thus, income tax return filing is mandatory if total income before giving effect to exemptions or deductions is higher than the basic exemption limit
Tax rates for capital gain are based on the nature of capital gain, for long-term capital gain the tax rate is 20% plus applicable educational cess and surcharge. For short-term capital gain, the tax rate is as the same as the slab rates applicable to the person, in the case of listed equity shares and units of equity-oriented mutual funds the tax rate is 15 % applicable to educational cess and surcharge.
Exemptions for long-term capital gain can be claimed U/s 54 for residential house property, 54F for house property which cannot be claimed U/s 54 subject to other conditions, 54EC for land or house property, 54EE for any long term capital asset, 54D compulsory acquisition, 54GB for long term capital gain exemption by investment in prescribed equity shares, Exemption U/s 54B land used for the agricultural purpose can be claimed for long term as well as short term capital gain
Only capital assets shall be taxed under capital gains. As per section 2(14) agricultural land can be classified as a capital asset only if it is not located in the specified area based on the distance from the nearest municipality or cantonment and having a prescribed population. When agricultural land is not a capital asset there as per section 2(14) then there is no question of capital gain computation. Exemption U/s 54B or Exemption U/s 10(37) can be claimed in respect of agricultural land when it is a capital asset as per section 2(14).
Exemption for capital gain can be claimed only if the investment is made by the same person for whom capital gain is taxable, however in case if a person is interested to buy a property in name of family members either they can buy from the value not taxable under capital gain, alternatively, they can transfer the property after the minimum period of holding for the satisfaction of conditions for exemptions is over, this will enable the family member to avail the benefit of section 49(1) as well as the transferor will save capital gain tax
Advance tax provisions are applicable if the estimated tax liability is Rs.10,000 or more during the financial year, so if the estimated total tax liability is Rs.10,000 or more due to capital gain we should pay advance tax in order to avoid interest U/s 234B and 234C.
There is no basic exemption limit for capital gain, however, if total income under other heads is lesser than the basic exemption limit, then the unused portion of the basic exemption limit can be used to reduce the amount of capital gain, this benefit is not available for capital gains from the sale of equity investments.
If the property is transferred from parents by means of inheritance or will, then capital gain on the sale of property received through inheritance is chargeable to capital gain in the hands of the seller who inherited the property.
Jewellery made of precious metals stones, gold, silver, platinum, and other precious metals is a capital asset as per section 2(14), therefore it is chargeable to capital gain as long term or short term capital gain based on the period of holding the asset.
Revised return
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.
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.
TDS is deducted @ 1 % on the sale price or stamp duty value whichever is higher if the sale price is Rs.50 lakhs or more as per section 194-IA. In case the seller does not have a PAN number, TDS shall be deducted @ 20 %. In case the property is sold by NRI then TDS shall be deducted @ 20 % for long-term capital gain, if the period of holding is 24 months then the immovable property can be classified as a long-term capital asset, otherwise the TDS is deducted @ 30 % for long term capital asset.
