ITR filing for FY 2021-22: How to calculate capital gain tax on sale of property

ITR filing for FY 2021-22: Due date for income tax return (ITR) filing for the assessment year (AY) 2022-23 for financial year (FY) 2021-22 is just 3 days away. So, earning individuals are busy calculating their annual income from both direct and indirect sources of their income. For an earning individual, most of the earnings are easy to calculate but if the taxpayer has sold any property, then in that case the situation might become tricky while calculating one's capital gain. So, it is important to know how one can calculate one's capital gain on the property sold during FY 2021-22.

On how to calculate capital gain on property sale, Hemal Mehta, Partner at Deloitte India said, "Property i.e., land and building qualify as a ‘capital asset’ (excluding agricultural land which is not a capital asset), capital gains tax is levied at the time of transfer of such land and building. The nature of such capital gains can be classified as ‘long-term’ if the property is held by the seller for 24 months or more; or as ‘short term’ if held for less than 24 months. Long-term capital gains are taxed at the rate of 20 per cent (increased by the applicable surcharge and cess) whereas short-term capital gains is taxed at the normal tax rate of the assessees."

Hemal Mehta went on to add that capital gains is worked out by reducing the transfer expenses and the indexed cost of acquisition (‘CoA’) from the full value of consideration (‘FVOC’). However, in case of land/building; such FVOC should be minimum stamp duty value (‘SDV’) of such property, however, safe harbor limit up to 10 per cent is allowed. In other words, if SDV is more than 110% of the sale consideration, then such SDV shall be deemed to be FVOC. Capital gains taxpayers are also allowed an indexation of cost incurred on acquiring and improving the asset.

Further, the purchaser of the property has to deduct tax on behalf of the seller, at the rate of 1 per cent of the total consideration, provided the consideration exceeds ₹50 lakhs. Accordingly, if the payments are made in instalments; then TDS would also be deducted on every instalment. Thus, the buyer is obliged to undertake the withholding tax related compliances. The seller can avail the credit of such TDS at the time of filing its income-tax returns.

Archit Gupta, Founder & CEO at Clear said, "If the taxpayer has sold a property within two years of its purchase or construction, short-term capital gain(STCG) will be taxed at applicable slab rates. However, say the property was sold after completion of 24 months, long-term capital gain (LTCG) will be taxed at 20 per cent. LTCG."

On how to compute capital gains on property sale, Clear expert listed out the following formula:

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

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

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

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