Capital gain tax on house property arises only when you sale your building or house property to some one else for a consideration. If you have held this building for more than 3 years then you will be paying tax at the rate of 20.6% on such capital gain as it will be treated as long term capital gain (LTCG). If the building is held for less than 3 years then it will be considered as short term capital gains (STCG) instead of treating it as a long term.
For long term capital gain, you need to arrive at income tax liability after deducting indexed cost of acquisition. Short term capital gain will be charged to income tax at normal rate of income tax as applicable to the tax payer.
In case of NRI both long term and short term are chargeable to income tax i.e. if you have a house property in India which you acquired being here or in abroad and wanted to sale it for some reason then the capital gain arise out of it will be taxable in India irrespective of your taxation law applicable to you at your foreign country.
The buyer in the case of non-resident Indian needs to deduct TDS at a rate of 20.6% from the gross consideration if the capital gain is a long term capital gain. In case it is short term then the TDS rate will be deducted at the rate of 30.9% on gross consideration.
In case total income exceeds Rs. 1 crore then surcharge at the rate of 10% will be charged in addition to the TDS amount deducted.
How to arrive at your long term capital gain
Let us calculate long term capital gain with following details;
- House property sold for Rs. 35, 00,000
- Year of purchase: 2000
- Purchase Price of house property: Rs. 15, 00,000
- Year of Sale: 2012
To arrive at capital gain of house property we need to first arrive at it’s indexed cost of acquisition;
Indexed cost of acquisition = Purchase price of asset * Cost inflation index for the year of sale/Cost Inflation Index for the year of purchase
Indexed cost of acquisition = Rs. 15, 00,000 * 785/389 = Rs. 30, 26,992
From the cost inflation index table we can find CII for the year 2000 is 389 and CII for the year 2012 is 785
After arriving at indexed cost of acquisition if we subtract it from the sale price of house property then capital gain will be arrived.
Capital gain for the house property = Sale price – Indexed Cost of Acquisition = Rs. 35, 00,000 – Rs. 30, 26,992 = Rs. 4, 73,008
Capital gain as arrived in this case will be treated as long term capital gain as the house property is held for 12 years (i.e. more than 3 years).
Cost of improvement
In addition to Indexed cost of acquisition you can also claim the cost that you incurred for the improvement of asset i.e. house property in this case. From the year of this cost you need to index it to arrive at the indexed cost of acquisition like we did for cost of acquisition.
Exemption on sale of house property
Section 54 allows you to claim exemption on sale of house property if such sale consideration or the entire amount of capital gain has been invested in buying another house. To know more on section 54 exemption please read this article.
If the seller is not able to invest his sale consideration as required under different sections of income tax act to claim exemption benefit then income tax benefit can be taken by keeping these amounts in CGAS with any authorized bank.