What is Profit? Answer is very simple,” it’s just a financial gain, especially the difference between selling price and buying price. Here selling price should be higher than buying price to earn profit/gain else you may incur loss”. Very short explanation and easy to understand na..??

But what if, you have incurred some amount of expenses while buying, maintaining the asset till you sell it? Here you have to consider not only the amount spent on buying, but also the cost of maintenance, transportation, even expenses you bear while selling.

Do you think you can apply the same formula while calculating the gains from selling your residential house property? Hmm Yes! but it partly right. Here you have to struggle little more to figure out the actual gains from such transaction.

While you sell a house property, you should not only consider the buying price and selling price, but also you have to take cost of acquisition, holding period, tax liabilities, indexation etc into account.

Basically the gain/loss arise out of selling a house property is treated as short term capital gain/loss or long term capital gain/loss depending upon the period of holding the capital asset i.e. the house property. If you owned the house property for less than three years (36 months) before selling it, then it is considered a short-term capital asset and if you sell it after three years (36 months), it is a long-term capital asset. Any Gain/Loss arises during selling the house will be considered as short term capital gain/loss (if it’s a short term capital asset) or long term capital gain/loss (if it’s a long term capital asset).

For better understanding, let’s take an example;

Mr. Tax Payer purchased a house for Rs 8,50,000 on Jan 20, 1992, and sold it on Oct 1, 2012, for Rs 85,00,000. During June 2001, he spent Rs. 3,00,000 for improvement in the house. While selling the house he had to incur Rs. 1,50,000 as selling expenses. Since he sold the house 36 months after he bought it, the capital gain will be long term.

To calculate the Long Term Capital gain, we have to follow the below process step by step;

While arriving at Long Term Capital Gains, it is required to figure out the Index Cost of Acquisition/Purchase Price as well as the indexed value of improvements if any (see Cost Inflation Index or CII)

Thus, Long Term Capital Gains = Rs. 35,39,535. Isn’t it simple to calculate?

Remember, if the house would have been acquired/purchased before 1st April 1981, then the indexed cost of acquisition for the house should have been Fair Market Value of the house as on 1st April, 1981, and then find the indexed cost of acquisition based on this price.

FYI, Long Term Capital Gain is taxed at a flat rate of 20% plus 3% education cess. So the tax liabilities for the above gains will be Rs. 7,29,144 i.e. (Rs. 35,39,535 x 20.60%).

Now it seems to be very easy to calculate the Long Term Capital Gains from Sale of House Property, Isn’t it?

How to Calculate Long Term Capital Gains from Sale of House Property?

37 thoughts on “How to Calculate Long Term Capital Gains from Sale of House Property?

  • April 22, 2013 at 12:00 PM
    Permalink

    Sir,
    I sold my fixed property and gain the LTCG. This LTCG i would like to invest in fixed property with in stipulated period. for the time being i would like to deposit the amount in Capital Gain Account scheme of Nationalised Bank. So, What is the time limit for amount deposit in bank i.e. “Capital Gain Account scheme of Nationalised Bank”.
    Please Clarify .
    with Regards,
    Sai Babu.

    Reply
    • April 22, 2013 at 11:13 PM
      Permalink

      Hi Babu,
      The answer is very well available within your question itself. That is, the maximum time limit is the stipulated time left for investing in new property. If you are buying then it’s 2 years and if you are constructing then it’s 3 years from the date of actual sale has happened.

      Also note, any unutilised amount shall be treated as capital gains of the year during which the specified period expires.

      Reply
  • July 13, 2013 at 3:24 PM
    Permalink

    sir,
    i bought a residential property in 1975 for Rs.2,25,000 and sold it for Rs.2.50 cr in june 2013.
    how much will be my capital gain and how much worth of bonds i have to purchase to avoid ltcg.

    Reply
    • July 13, 2013 at 10:24 PM
      Permalink

      Hi Gupta,

      Property purchased before April 1, 1981 then the Fair Market Value as on April 1, 1981 as certified by an Indian government approved valuer would be considered as cost of that property. Further on this FMV you have to calculate the indexed value (i.e. 100 for 1981-82) on the sale of the said property.

      To save tax on the gain amount you may buy another residential property within 2 years from the date of actual sale or construct it within 3 years. Alternatively you can invest the gain amount in 54EC bonds. But remember the max limit for 54EC bond is Rs. 50Lacs and the investment should be done within 180 days from the actual sale.

      Reply
  • July 17, 2013 at 3:59 PM
    Permalink

    Hi Soubhagya,

    I wanted to know few things about property tax I.e. long term and short term capital gain. In 2009 Nov I booked a under construction property whose registration we did on 2010 June and got possession on July 2011. Now if I want to sell property then which tax would be applicable? I came to know from some sources that if we invest the money to some other property then we can save the tax.
    I have seen a new under construction property in Mumbai but builder is not ready to do agreement yet because CC has not come yet. It may be possible that next year I get the chance to execute agreement. So, if it gets delayed and suppose I get possession after 2-3 years then what will happen? Please guide me how can I save property tax?
    Thanks.

    Reply
    • July 18, 2013 at 5:29 PM
      Permalink

      Hi Sparsh,

      From the date of registration just count, if it has completed 3 years then it will be treated as long term gains else it should be a short term gains. In case of short term gains you have to pay tax as per your slab, but yes there is a way to avoid the long term gains (which is 20.60% tax on gain amount), if you buy another property in two years or construct in 3 years.

      Since you said you have seen a property (under construction ), but it will take some time, in that case you can keep the gain amount (if long term gains) in a capital gain scheme account. Read below for more details on Capital gain Scheme account;
      http://www.succinctfp.com/index.php/use-capital-gains-account-scheme-to-save-tax/

      Reply
      • July 18, 2013 at 6:07 PM
        Permalink

        Hi Soubhagya,
        Buying a property within 2 years means doing registration or getting possession? It may be possible I invest that money immediately in buying under construction property whose possession is expected in Jan 2014. To execute the agreement I need to borrow some extra loan In this way if builder fails to give possession in next 3 years what will happen? Since, I would have done Registration that time Do I need to pay Long term capital gain that time or there is a provision of saving tax that time because getting possession is not in our hand.

        Reply
        • July 18, 2013 at 6:23 PM
          Permalink

          Yes registration and getting possession in 2 years. As per rule if construction doesn’t complete within 3 years then the exempted tax in the earlier years will be withdrawn and applicable penalty and interest will be levied.

          Reply
  • August 5, 2013 at 12:16 AM
    Permalink

    Hi Soubhagya
    Thanks for the detailed information provided on this website. I have a question about using capital gains for renovation of an existing house. Let’s say I have a LTCG of 40 lakhs, out of that I invest 25 lakhs in a 54EC bond. Can I use the remaining 15 lakhs in renovating my existing house? I have a one storey independent house and I would like to build an additional floor in such a way that the upper floor is an independent flat that can be rented out? Would this be considered as an investment in property to avoid capital gains tax?
    In addition, while selling a property to have the cost of improvement (for e.g 5lakhs) deducted from capital gains, is there a requirement to furnish receipts to prove the expenses?
    Regards

    Reply
    • August 5, 2013 at 6:17 PM
      Permalink

      Hi Jyothi,

      Renovation is not allowed here. And answer to your final question is, cost of improvement will reduces the LTCG, it is advisable to maintain the records/receipts of such expenses and whenever there is a requirement you need to produce. This means you can not simply so some value, later you need to prove it.

      Reply
  • August 12, 2013 at 1:37 PM
    Permalink

    this is good, thanks for sharing, there are many articles that deal with this topic but very few have illustrations as clear, crisp and lucid as yours. Thanks Soubhagya…

    Reply
    • August 12, 2013 at 1:58 PM
      Permalink

      Thanks for appreciating Sid.

      Reply
  • December 25, 2013 at 4:51 PM
    Permalink

    Thankyou for useful information in easy language.
    I bought a plot which was registered in Dec 2009. In 2012, I started construction of house on that plot and construction was complete in Aug 2013. If I sell the property in Dec 2013, would I be liable for long-term capital gain or short-term capital gain? Please clarify.

    Reply
    • December 25, 2013 at 5:33 PM
      Permalink

      Hi Ali,

      Yes you are eligible for LTCG since the holding period comes to approx 3 years and 8 months.

      Reply
      • December 30, 2013 at 4:55 PM
        Permalink

        Thankyou for your reply. This helps!!!

        BTW, did you mean holding period is 4 years. I plan to sell the house in Dec 2013. The construction of house was complete in August 2013. Clarifying to ensure I understood it correctly

        Reply
        • December 30, 2013 at 5:29 PM
          Permalink

          Hi Ali,

          You have got the title ownership on Dec’2009 not on Aug’2013.

          Reply
  • June 16, 2014 at 2:05 PM
    Permalink

    Sir,
    Could you tell me that what is the cost of construstion be considered by the assessing officer at the time of assessing caipat gain. CPWD Rates Or MCD rates .

    Reply
    • June 16, 2014 at 8:49 PM
      Permalink

      Hi Rajeev,

      As I understand, AO would refer to actual payments or cost involved to assess cost of construction for capital gain purpose.

      Reply
  • June 21, 2014 at 11:30 AM
    Permalink

    I have sold property to Rs. 3000000/- in 7 April 2014 and sale commission paid Rs. 21000/- which was purchased a Semi construct house property from a society in 2003-2004 Rs. 440000/- and cost of finishing in 2004-2005 Rs. 122600/- and
    Cost of improvement of house 1st & 2nd Floor in 2005-2006 Rs. 617400\-
    Stamp Duty,Registration Fees and Legal Expenses in 2012-2013 Rs. 77000\-

    and I purchased Residential Plot against above Property Rs.750000\- and Stamp Duty,Registration Fees and Legal Expenses Rs.50000\-
    I am not able to construct house in 3 years on this plot.
    Kindly let us know whether I am liable to pay any tax. or how money Purchase of Rs. bonds for LTCG tax save.

    Reply
    • June 23, 2014 at 9:58 PM
      Permalink

      Hi Indu,

      With the above information, approx. Rs. 17,23,472 would be the indexed cost and your sale value Rs. 30,00,000, then LTCG comes to Rs. 12,76528. So you need to pay tax at a rate of 20.60% on LTCG.

      Please note purchase of residential plot will not save you from payment of tax until you construct a house on it within specified period of time, but yes you may look at 54EC bonds for the same amount i.e LTCG amount.

      Reply
      • June 24, 2014 at 4:25 PM
        Permalink

        hi Soubhagya Kumar Patra
        My CII calculation as below please talk me where is wrong ?
        Full value of consideration 3000000
        Cost of Semi construct house purchased
        2003-2004 [440000 * 1024/463] 973132
        cost of finishing house of ground floor
        2004-2005 [125000 * 1024/480] 266667
        Cost of improvement of house 1st & 2nd
        Floor 2005-2006 [617400 * 1024/497 ] 1272068
        Stamp Duty, Registration Fees and Legal
        Expenses 2012-2013 [77000 * 1024/852] 92545
        Commission on Sale 2014-2015
        [21000 * 1024/1024] 21000 Less : Total Cost of acquisition 2625411
        Gross LTCG [3000000- 2625411] = 374589

        Reply
        • June 24, 2014 at 5:54 PM
          Permalink

          Hi Indu,

          In your first question the cost of finishing in 2004-2005 was Rs. 1,22,600, but now you have calculated it as Rs. 1,25,000 i.e. number one and the second thing is; you are adding sales commission to arrive cost of acquisition which is not correct. Even if you add it, then final figure should come to Rs. 17,44,472 not Rs. 26,25,411 (or any nearby).

          Reply
          • June 24, 2014 at 7:31 PM
            Permalink

            Yes, sir finishing cost 122600 but i purchased its house semi finished in F.y 2003-2004 Rs. of 440000 possession Date 24.03.2004 from a society and after finishing cost 122600 in exp. f.y 2004-2005 and its improved is 1st floor and 2nd floor made in f.y 2005-2006 cost of 617400 and Stamp Duty, Registration Fees and Legal Expenses f.y 2012-2013 Rs 77000
            I am not understood your calculation sir please describe calculation me so I tax saving bounds purchased.

  • June 22, 2014 at 11:18 PM
    Permalink

    My fathers property was jointly sold and proceeds distributed amongst the children. I invested my proceeds in capital gain exemption deposit scheme in July 2008. These were invested in a property before July 2009 and was only 50% of the new property value. The new property was then under construction and regusteration happened in nov 2013.
    When can I sell the new property without attracting capital gains tax ( 3 yrs from July 2009 or nov 2013)? Also if I sell the new property and invest 100% again in another property can I again claim full exemption from investment so made.

    Reply
    • June 23, 2014 at 9:38 PM
      Permalink

      Hi Sonia,

      I am little confused with the given information that when was the first investment happened for the property which got registered during Nov 2013.

      With these details I can make out that you should sell the property after 3 years from 2013 to make it long term capital asset for taxation purpose. If your allotment had happened by 2009 then 3 year from 2009 will make it a long term capital asset.

      Reply
  • June 27, 2014 at 10:00 PM
    Permalink

    My husband has purchased a land for 2.5 lacs in 1996 and then we constructed a house on it in 1998 for 8 lacs then in 2002 we spent 1 lac on waterproofing of the roof next we extended the house in 2005 spending another 5.3 lacs. However I do not have documentation of these expenses as we had made payments during the cunstruction by cash on our savings. After my husband expired in 2010 I sold the house in 2012 for 40 lacs. I have two questions:
    Since I do not have documentation on the house building and extension expenses – what should I do?
    How much is my tax liability.

    Reply
    • June 28, 2014 at 9:15 PM
      Permalink

      Hi Mira,

      For the first question, I would suggest you to take help of a lawyer. With regards to second query, the taxable long term capital gains (LTCG) would be approx. Rs. 2,41,335.36

      1996-1997 – CII -> 305 | Cost -> Rs. 2,50,000.00 | Indexed Cost by 2012-13 -> Rs. 6,98,360.66
      1998-1999 – CII -> 351 | Cost -> Rs. 8,00,000.00 | Indexed Cost by 2012-13 -> Rs. 19,41,880.34
      2000-2001 – CII -> 406 | Cost -> Rs. 1,00,000.00 | Indexed Cost by 2012-13 -> Rs. 2,09,852.22
      2005-2006 – CII -> 497 | Cost -> Rs. 5,30,000.00 | Indexed Cost by 2012-13 -> Rs. 9,08,571.43

      Indexed Cost for FY 2012-13 -> Rs. 37,58,664.64
      CII for FY 2012-2013 -> 852 | Sale Value -> Rs. 40,00,000.00

      Long Term Capital Gains for FY 2012-13 -> Rs. 2,41,335.36 i.e [Rs. 40,00,000.00 – Rs. 37,58,664.64]

      Tax would be approx. Rs. 49,715.08 i.e. [Rs. 2,41,335.36 × 20.60%]

      But I am surprised, it is an LTCG for FY 2012-13 and supposed to be taxed for the FY 2012-13! Haven’t you paid tax yet?

      Reply
  • August 20, 2014 at 11:59 AM
    Permalink

    Hi Soubhagya,
    Thanks a ton for the detailed explanation.
    I have purchased a flat in July 2010 for Rs 24,00,000/-, spent Rs. 2,40,000/- for registration in July 2010, and spent Rs 3,00,000/- in November 2011 on improvement of flat. I am selling this flat now (August 2014) for Rs. 44,00,000/-.
    Based on cost inflation index calculation my cost of acquisition of the flat in Aug-2014 is coming to Rs. 41,93,532/-. Hence the gain from this sale is Rs. 2,06,468/-
    Now my question is “How much do I need to invest in new residential property to save LTCG? Is it the gain (Rs. 2,06,468) only or full sale proceed (Rs. 44,00,000)?”

    Thanks – Hari

    Reply
    • August 21, 2014 at 9:33 AM
      Permalink

      Hi Hari,

      To save tax! It should be at least the LTCG amount i.e. Rs. 2,06,468

      Reply
  • March 28, 2015 at 9:30 AM
    Permalink

    Dear Saubhagya,
    I see a lot of good and too the point answers from you and I appreciate your help to ordinary people.

    My sale would be complete by 30-APR-2015. My question is by when I must deposit the capital gain of the sale in LTCG account? Is it before 31-JUL-2015 or 31-JUL-2016?

    Thanks

    Reply
    • April 4, 2015 at 11:04 PM
      Permalink

      Hi Sahoo,

      You are lucky! Your sale will be considered for the FY 2015-16. In that case LTCG amount should be deposited before return filing due date for the AY 2016-17 i.e. July 31, 2016.

      Reply
  • April 11, 2015 at 4:27 PM
    Permalink

    Hello Sir,

    Many thanks for the simple and clear article.

    I bought a flat in Dec 2010 for Rs 29,50,000 where registration and stamp duty cost was around Rs 1,60,000. I am now selling my flat in FY15-16 for which CII is not yet declared.

    My questions are
    1. while calculating cost of acquisition, will my purchase price will include stamp duty and registration cost as well?
    2. If I am paying brokerage to the agent for selling my flat then will that amount be deducted from the selling price before calculating cost of acquisition?

    Many thanks in advance for your help and time!

    Regards!

    Reply
    • April 23, 2015 at 11:05 PM
      Permalink

      Hi Anoj,

      1. Yes, stamp duty & registration cost will be included in acquisition cost.
      2. If the brokerage charges are mentioned in sale deed, then yes you can get the benefits else not.

      Reply
  • April 28, 2015 at 6:02 PM
    Permalink

    Hi Sir,
    I am purchasing a property worth 1.15,00,000 from a NRI. Property is more than 3 yrs old.
    So Long Term Capital Gain calculation is valid for TDS deduction OR 22.66% flat deduction on
    sale price is applicable as per section 195 ?

    Regards,
    Prashant

    Reply
    • June 16, 2015 at 9:20 PM
      Permalink

      Hi Prashant,

      As a buyer if you have no letter/certificate from Assessing Officer instructing how much to deduct, then in that case you should deduct TDS at a rate of 20% plus 3% cess i.e. 20.60% on full consideration value. I am not sure how you arrived at 22.60%.

      Reply
  • May 9, 2015 at 10:19 PM
    Permalink

    Sir,
    Thank you very much for valuable information. I have purchased a flat in Feb 2010 for 30 lacs & selling in June 2015 for 85 lacs. I have purchased on Bank EMI ( 26.5 lacs ) where i payed EMI 25K every month till August 2013. then i settled in the loan by paying around 25 lacs. will this be considered in buying cost ?.
    Also as a part of major improvement in the society , we all paid around 1.5 lacs in 2012. Can it be considered in calculating LTCG?

    Reply
    • June 15, 2015 at 2:20 PM
      Permalink

      Hi Anvar,

      Repayment/Pre-Closuer outstanding loan or expenses made towards society maintenance will not be allowed to adjust while computing net cost of acquisition.

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

css.php
Read previous post:
Lost Pan Card..!!! How to Apply a New One..???

It may be due to ignorance or due to any genuine reason you lose/lost your PAN Card. If same is...

Close