INDEX
- Capital gain on Sale of Property
- Short Term Capital Gain
- Long Term Capital Gain
- Example of STCG
- Example of LTCG
- Tax Treatment
Capital Gains Tax on the Sale of Property
Capital Gains Tax on the Sale of Property
Capital gains tax on the sale of property in India refers to the tax imposed on the profit earned when a property is sold for a price higher than its purchase cost. This profit is considered as income and is subject to tax under the Income Tax Act. The tax applies specifically to the monetary gain made from the sale or transfer of residential properties or land by an individual, provided that such income is not the person’s primary source of earnings.
For more detail on click here Income From Capital Gains
Short-term Capital Gain (STCG) on Property Sale
When the property is sold within 24 months of acquisition, the profit is classified as short-term capital gain (STCG).
Long-term Capital Gain (LTCG) on Property Sale
In contrast, if the property is sold after being held for more than 24 months, the profit is classified as long-term capital gain (LTCG).
Below is a comparison of STCG and LTCG on the sale of property, flats, or any other immovable property:
| Particulars | STCG on Property | LTCG on Property |
|---|---|---|
| Tax Rates | Slab rate | (i) 20% with indexation (If sold before 23rd July 2024) (ii) 12.5% without indexation (If sold on or after 23rd July 2024) |
| Special Notes | For land and building sales after 23rd July 2024, taxpayers can choose between the above tax rates. However, this option is restricted for purchases made on or before 22nd July 2024. |
Example 1: Short-term Capital Gain (STCG)
Scenario:
• Purchase of Property: An individual purchases a flat for ₹50,00,000 on 1st January 2022.
• Sale of Property: The individual sells the flat for ₹60,00,000 on 1st January 2024 (within 24 months).
Since the property is sold within 24 months of acquisition, the profit of ₹10,00,000 (₹60,00,000 – ₹50,00,000) will be considered Short-term Capital Gain (STCG).
Tax Treatment:
• The tax on STCG will be calculated based on the individual’s income tax slab, in accordance with their tax bracket.
Example 2: Long-term Capital Gain (LTCG)
Scenario:•
Purchase of Property: An individual purchases a house for ₹50,00,000 on 1st January 2020.
• Sale of Property: The individual sells the house for ₹80,00,000 on 1st January 2023 (more than 24 months later).
Because the property is sold after being held for more than 24 months, the profit of ₹30,00,000 (₹80,00,000 – ₹50,00,000) will be treated as Long-term Capital Gain (LTCG).
Tax Treatment:
• If the sale happens before 23rd July 2024, the tax rate on LTCG will be 20% with indexation.
• However, if the sale occurs on or after 23rd July 2024, the tax rate will be 12.5% without indexation.
In both cases, the tax will be calculated based on the capital gain, applying indexation (if applicable) or without it, depending on the date of sale.