What is the Capital Gains tax Rate for 2019? And how is it calculated


When you have built a low cost diversified portfolio, and your assets value more than what you paid for them, you might have the idea of selling some of your assets in order to realize the capital gains.

What is capital gains?

The profit you get out of selling your stock or assets like real estate is the capital gain you made on the sale. The tax rate you pay on capital gains will depend on the length of time for which you are holding the asset. Hence we can talk about short term capital gains and long term capital gains. Each of them are taxed differently. Short term capital gains are the profits that you get from selling that assets that are held with you for less than three years (36 months). These gains are taxed in the same way like regular income. This will mean that you will pay the same tax rates on your short term capital gains that are applicable to you as per your income tax slab.

Long term capital gains refer to the profits that you make on selling the assets you are holding with you for more than three years. The tax rates on long term capital gains are lower than the tax rates of the short term capital gains. This is because the taxation laws feel that it is not fair to tax the property owner for the nominal gains he makes only on account of inflation.

How to calculate short term capital gains

Consider Suresh is selling his property in January 2016 for Rs 50 lakh which he bought in December 2014 for Rs 30 lakhs. Assume that Suresh falls in the highest tax lab of 30% based on his income. Suresh had spent Rs 2 lakhs on improving the property during the holding period. He also paid the brokerage of 0.5 % on the selling price. Here is how to calculate his capital gains and the tax amount he is supposed to pay.

Sale price of the house: Rs 50,00,000

Minus transfer expenses incurred like brokerage and commission: Rs 25,000

Net value of the sale: Rs 4,975,000

Minus purchase price of the house + home improvement costs: (30,00,000 + 200,000)

Gross short term capital gains: Rs 17,75,000

Tax payable on short term capital gains depending on the income tax slab (30%): Rs 5,32,500

How to calculate long term capital gains

Mahesh sold his property in January 2016 for a price of Rs 50 lakhs that he purchased on December 2011 for Rs 30 lakhs. Depending on his income, Mahesh falls in the 30% income tax group. Mahesh had spent Rs 2,00,000 on home improvement and also a brokerage of 0.5% on the sale price of the property. Here is the way to calculate the capital gains tax payable by Mahesh.

Since Mahesh had bought the property before three years of selling it, his capital gains will considered as long term. The long term capital gains are taxed at the rate of 20%.

Sale price of the house: Rs 50,00,000

Minus transfer expenses like brokerage: Rs 25,000

Net sale price: Rs 49,75,000

Minus Acquisition cost of the house (Rs. 30 lakhs * cost index of FY 2016 (1081) and cost index of FY 2012 (785): Rs 41,31,210

Minus home improvement cost: (Rs 2 lakhs * cost index of FY 2016 (1081) and cost index of FY 2012 (852): Rs 2,53,756

Gross long term capital gain: Rs 5,90,034

Tax payable by Mahesh on this long term capital gain: Rs. 5,90,034 * 20% = Rs 1,18,00

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