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ITR filing: How to calculate capital gain tax on property sale

The July 31 deadline to file income tax returns (ITRs) for financial year 2021-22 and assessment year 2022-23 is closing in. While crores of taxpayers – more than 4.09 crore till July 28, as per the IT department – have already made their tax payment, others are busy calculating their annual income from both direct and indirect sources.

Also Read: Centre firm on not extending deadline for ITR submission, netizens trend ‘extend due dates’

While it is easy for a salaried individual to calculate their income, the situation becomes tricky if the taxpayer sold any property; in such a case, determining one’s capital gain becomes difficult.

“Capital gain is worked out by subtracting the transfer expanses and indexed cost of acquisition (CoA) from the full value of consideration (FVOC). For land/building, the FVOC should be minimum stamp duty value (SDV) of such a property,” Lievmint quoted Hemal Mehta, a partner at Deloitte India, as saying.

Mehta added that a ‘safe harbour limit’ of up to 10% is allowed, which means that if SDOV is more than 110% of the sale consideration, it shall be deemed as FVOC.

Also Read: How to file ITR online? Here’s a step-by-step guide

Further, the following steps, too, are to be taken while calculating capital gain tax on property sale, Mehta said: (1.) At 1% of the total consideration (if in excess of 50 lakh), the purchaser of the property has to deduct tax on the seller’s behalf, and (2.) accordingly, if the payments are made in installments, then tax deducted at source (TDS) would be deducted on each installment.

Meanwhile, Archit Gupta, Founder and CEO at Clear, also spoke with Livemint. “If a property is sold within two years of purchase or construction, then short-term capital gain (STGC) would be taxed at applicable slab rates. However, if sold after two years, a long-term capital gain (LTGC) would be taxed, at 20%,” Gupta said.

He put out the following formula to compute capital gain on property sale:

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

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

The capital gain will, however, be exempted from tax if the sale proceeds are invested in buying another residential property, or notified bonds (such as NHAI, REC, IRFC), in a capital gain account designated for such investments, Archit Gupta explained.


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