Computation method
· Short-term capital gains
A standard computation of short-term capital gains is given below —
Particulars | Amount |
Sale Consideration | XXXX |
Less: Cost of acquisition | (XXX) |
Less: Cost of improvement | (XX) |
Less: Expenses incurred at the time of sale | (XX) |
Short-term capital gains | XXX |
Short-term capital gains are included in the total income and taxed at the progressive slab tax rates applicable for the taxpayer.
With effect from October 1, 2004, short-term capital gains resulting from specified securities traded on a recognised stock exchange in India and on which Securities Transaction Tax is paid, are liable to tax at a fixed rate of 10 % (plus applicable surcharge and education cess).
· Long-term capital gains
A standard computation of long-term capital gains is given below:
Particulars | Amount |
Sale Consideration | XXXX |
Less: Indexed cost of acquisition | (XXX) |
Less: Indexed cost of improvement | (XX) |
Less: Expenses incurred at the time of sale | (XX) |
Long-term capital gains | XXX |
The long term capital gain is calculated based on indexation of the cost of acquisition (COI) and indexed cost of improvement (COI) vis-à-vis the current year and the year of acquisition or improvement. Indexed COA and COI are calculated using the following formula:
COA/COI X Cost inflation index of the year of transfer
Cost inflation index of the year of acquisition/improvement
The indexation rates prescribed by the Government are as follows:
Financial Year | Cost Inflation Index | Financial Year | Cost Inflation Index |
1981-82 | 100 | 1995-96 | 281 |
1982-83 | 109 | 1996-97 | 305 |
1983-84 | 116 | 1997-98 | 331 |
1984-85 | 125 | 1998-99 | 351 |
1985-86 | 133 | 1999-2000 | 389 |
1986-87 | 140 | 2000-01 | 406 |
1987-88 | 150 | 2001-02 | 426 |
1988-89 | 161 | 2002-03 | 447 |
1989-90 | 172 | 2003-04 | 463 |
1990-91 | 182 | 2004-05 | 480 |
1991-92 | 199 | 2005-06 | 497 |
1992-93 | 223 | 2006-07 | 519 |
1993-94 | 244 | 2007-08 | 551 |
1994-95 | 259 | | |
Long-term capital gains are liable to tax at a fixed tax rate as follows —
· 10 % in case of specified securities without indexation benefit. The individual has the option to decide whether to take the indexation benefit or not; or
· 20 % in other cases;
Plus applicable surcharge and education cess.
With effect from October 1, 2004, long-term capital gains resulting from specified securities traded on a recognised stock exchange in India and on which Securities Transaction Tax is paid are not liable to tax.
· Relief from capital gains tax in certain cases
Capital gains arising from transfer of capital assets may not be charged to tax, if the prescribed conditions are fulfilled. Broad overview is as given below:
Section Ref. | Capital Gain on sale of | Type of capital gains | Reinvestment of gains in | Period and Restrictions |
54 | Residential House property | Long term | Residential House property. | · Purchase within 1 year before or within 2 years after date of transfer, or construction within 3 years. · Lock in period for new asset - 3 years |
54B | Agricultural Land used at least 2 years prior to transfer | Short term/Long term | Agricultural land (rural or urban) | · Purchase within 2 years after date of transfer. · Lock in period for new asset - 3 years |
54EC | Any long term capital asset | Long term | Specified bonds (NABARD, NHAI, REC, SIDBI) | · Purchase within 6 months of date of transfer. · Lock in period for new asset - 3 years. · Investment in bonds by a taxpayer not to exceed Rs. 5000,000 during a year. |
54F | Any long term capital asset (other than residential house) | Long term | Residential House (Net consideration to be invested and not gains) | · Purchase within 1 year before or within 2 years after date of transfer. Construction within 3 years. Pending utilization, the amount can be invested in deposit account under Capital Gains accounts scheme. · Lock in period for new asset - 3 years. · No additional property (other than the new house) should be purchased within 2 years or constructed within 3 years from date of transfer of the asset. |