ITR filing for 2021-22: how to calculate capital gain tax when selling property

ITR filing for fiscal year 2021-22: The due date for filing Income Tax Return (ITR) for Tax Year (AY) 2022-23 for Financial Year (FY) 2021-22 is just 3 days away. Thus, earning people are busy calculating their annual income from direct and indirect sources of their income. For a person who earns, most income is easy to calculate, but if the taxpayer has sold property, then the situation could become tricky when calculating their capital gain. It is therefore important to know how to calculate its capital gain on the property sold during the 2021-22 financial year.

On how to calculate the capital gain on the sale of a property, Hemal Mehta, Partner at Deloitte India, said: “The property i.e. the land and the building is considered as one” capital” (excluding agricultural land which is not capital), capital gains tax is levied upon the transfer of such land and building. The nature of such capital gains may qualify as “long-term” if the property is held by the seller for 24 months or more, or “short-term” if it is held for less than more than 24 months. are taxed at the rate of 20% (plus applicable surcharge and tax) while short-term capital gains are taxed at the normal tax rate.”

Hemal Mehta went on to add that capital gains are calculated by reducing the transfer fee and the indexed acquisition cost (“CoA”) from the total value of the consideration (“FVOC”). However, in the case of land/building; this FVOC must be the minimum stamp duty value (“SDV”) of this property, however, a safety limit of up to 10% is permitted. In other words, if SDV is greater than 110% of the sale consideration, then that SDV will be deemed to be FVOC. Capital gains taxpayers are also entitled to indexation of costs incurred in acquiring and improving the asset.

In addition, the purchaser of the property must deduct tax on behalf of the vendor at the rate of 1% of the total consideration, provided that the consideration exceeds 50 lakhs. Thus, if the payments are staggered; then TDS would also be deducted on each installment. Thus, the buyer is required to take the steps related to withholding tax. The seller can claim the credit of these TDS when filing their tax returns.

Archit Gupta, Founder and CEO of Clear, said: “If the taxpayer has sold a property within two years of buying or building it, Short Term Capital Gains (STCG) will be taxed at the applicable slab rates. However , say the property was sold after the completion of 24 months, the Long Term Capital Gain (LTCG) will be taxed at 20 per cent. LTCG.”

On how to calculate capital gains on the sale of a property, expert Clear listed the following formula:

– STCG = Final sale price – (acquisition cost + cost incurred for the improvement or transformation or renovation + cost of making the sale).

– LTCG = Final sale price – (indexed acquisition cost + indexed cost incurred for the improvement or transformation or renovation + cost of making the sale).

“However, such capital gains will be exempt from tax if the proceeds of the sale are invested in the purchase of another residential property or in bonds notified by NHAI, REC, IRFC or in a designated capital gains account for such investments,” said Archit Gupta of Clear.

Here, the indexing cost will be: Cost [Cost inflation index (CII) of year of sale CII of year of acquisition or 2001-02, whichever is later].

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